How is AWI funded?

The Statutory Funding Agreement between AWI and the Australian Government defines the conditions under which AWI may invest the levy and Government-matched funds for R&D. The primary aim of the agreement is to ensure the funds are invested in line with woolgrower and Government expectations.

How are AWI finances managed?

We run a budget the way growers do on farm – adjusting all the time for variables like price, weather, production and more. When the AWI Board makes financial decisions and allocates budgets, it considers:

  • delivering a benefit to woolgrowers and the industry – increasing woolgrower profitability and global demand for wool.
  • woolgrowers’ priorities – what R&D and marketing activities have been identified as priorities during consultation with woolgrowers.
  • alignment with AWI’s Strategic Plan – developed by the AWI Board to reflect woolgrowers’ R&D and marketing priorities.
  • pathway to commercialisation – ensuring the investment can be commercialised and thereby realise benefit for growers.
  • market failure – where private investment is low/non-existent.

The AWI Board’s investment decisions are guided by the following questions:

“Will this decision benefit woolgrowers?”

“Are we helping to secure the industry’s future?”

Income and Expenditure

Consistent growth in wool prices across most microns for much of the past three years has meant AWI’s levy income has risen. During this period AWI has been building its resources and expenditure from $76.6 million in 2015/16 to a forecast of $88 million in 2017/18 to deliver R&D and marketing for woolgrowers.

This has allowed us to fund more wild dog control initiatives, train more shearers, commence a major genetic life-time productivity project, initiate a process to modernise the wool selling system, deliver more education opportunities for our young growers, and expand our marketing initiatives in our major consumption markets in China, North America and Europe.

The Board believe this level of investment is warranted, to continue to drive demand, as well as to support industry growth, sustainability and productivity. Simultaneously, AWI is focused on managing its finances and investments prudently to build resilience from this ‘once in a generation’ period.


AWI Reserves

AWI protects woolgrowers’ collective R&D and marketing investment by maintaining – and annually reviewing – its reserves level, which ensures the company retains sufficient funds to manage potential threats to the industry or changes to the company’s operations.

FORWARD CONTRACTS RESERVE

  –   to cover contract commitments in the event AWI is shutdown (reviewed at the end of each financial year) – currently $16 million.

OPERATING RESERVE

  –  nine months of annual operating costs in the event AWI receives a 0% WoolPoll result – currently $26 million.

EMERGENCY ANIMAL RESERVE

  –  fixed at $5 million to cover any contingent expenditure arising from obligations under the Emergency Animal Disease Response Agreement.

DISCRETIONARY RESERVES

  –  In 2017/18, the Board introduced a $35 million Discretionary Reserve to enable AWI to manage the cyclical nature of wool prices, by ‘banking’ any significant increase in income. The Discretionary Reserves is set aside for:

  • building resilience and a buffer to protect R&D and marketing projects in the event of a downturn in wool prices, and
  • investment in new, major R&D or marketing opportunities as they arise.

Available Reserves may go up or down based on levy choices expenditure, wool prices and production.

These figures are from 2016/17, which are the latest audited figures AWI had available at the time of printing.

Market analysis

As a fibre, wool is positioned globally as a premium product without rival from synthetics or cotton for performance. As global wealth increases, so too does the demand for our fibre as new markets are opened up, existing markets expanded and new innovations in how wool is used continue to flourish.

In the 2016/17 season, production levels as tested by AWTA were 355 million kilograms of raw wool. The 2017/18 season reached 360 million kilograms tested, keeping trend with the past five seasons.

While supply has remained consistent, the price of wool has risen as demand firmly outstrips supply. The Eastern Market Indicator (EMI) has lifted by more than $7.00/kg clean over the five years since June 2013, with an average EMI of over $17.34/kg clean for the 2017/18 season and a record high EMI of $20.73/kg clean.

China is our first and foremost valuable trading partner for wool. For the 2017/18 season, China imported more than 74% of Australian wool production. China is not only a dominant buyer of our wool for manufacture, its domestic consumer appetite is growing rapidly. China’s middle class now consumes more than 50% of the Australian wool imported into China. With that sector of the Chinese population demand for our fibre will more than likely increase in concert with the demographic growth.

As existing markets expand their demand, so too are new market segments for wool opening up. New research developments and technical innovations continually push wool into new products. The explosion of ‘athleisure’ has opened up a huge market for Merino wool, with consumers demanding more technical and higher quality products in their active wear. These new markets are set to grow as consumers are growing increasingly more aware of what they buy and how it is sourced.

With supply at steady levels and not likely to increase to any great degree, demand ever increasing, and wool firmly positioned as a premium product, the future of wool looks set to be positive into the foreseeable short to medium term period.

What has the strong EMI meant for AWI’s finances?

In preparing its operating budgets, AWI draws on the best available market analytics – including production forecasts, retail and trade market reports, consumer insights and trend monitoring, along with fibre market research. But the continued growth in the EMI over the current WoolPoll period exceeded even the most optimistic reports.

It’s not possible to scale up a business overnight. With the increase in income, AWI has spent the past couple of years building its resources across the business, so that we now have the right people and infrastructure in the right places to deliver more for Australian woolgrowers. At the same time, our reserves have also grown. In 2017/18, we increased expenditure again, putting additional funding into accelerating and expanding existing programs. Funding was provided for new R&D and marketing activities in line with woolgrower priorities outlined in AWI’s Strategic Plan.

Budget 2016/17

  • EMI would average 1225c/kg
  • Total revenue $73.4 million
  • Expenditure would be $73.4 million
  • Available Reserves would decline by $5 million – with AWI drawing down on funds to deliver R&D and marketing investment commitments
  • Closing reserves would be $84.0 million

Actuals 2016/17

  • EMI ranged from 1287 – 1546c/kg
  • Total revenue was $88.0 million
  • Expenditure was $70.8 million
  • Available reserves reported a surplus of $17.2 million
  • Closing reserves were $106.3 million
These figures are from 2016/17, which are the latest audited figures AWI had available at the time of printing.