Australia’s wool boss declares ‘every single’ area of spending under review following massive revenue hit

The Australian wool price has plummeted during COVID-19 due to the global downturn in retail spending. (ABC Rural: Jessica Hayes). Sketched by the Pan Pacific Agency.

CANBERRA, Sep 9, 2020, ABC News. Australia’s peak wool producers’ body vows to axe staff and slash costs as it tries to deal with the fallout from the COVID-19 pandemic and a global downturn in retail spending. Australian Wool Innovation (AWI) chief executive Stuart McCullough said the group’s annual revenue had collapsed by half to $45 million after wool prices went into freefall last year, ABC News reported.

With demand for wool products further collapsing around the world because of coronavirus, Mr McCullough said AWI was drastically cutting back its spending to cope with the situation.

Growers welcomed the comments as prudent but said it was crucial AWI cut spending in marketing rather than research and development.

Mr McCullough declared “every single” area of the organisation’s spending was under review, with staff numbers expected to fall from 158 to 125 by the end of the year.

There were 200 employees at AWI one year ago.

‘Every single thing has to be cut’

Mr McCullough said job cuts were “a fact of life”.

“There’ll be definitely more cuts to R&D and there’ll be definitely more cuts to marketing,” he said.

“We can’t halve our revenue and continue to do the same amount of work we were doing.

“Apart from reducing our staff numbers, we’re looking at every single cost-cutting measure here.

“Doesn’t matter what it is.

“That means leases, operating costs, every single thing has to be cut.

“And I can assure you the company is doing that.”

While the plummeting price of wool has buffeted AWI’s bottom line, making financial matters worse was the decision by growers last year to reduce the non-profit’s share of the wool clip.

Producers voted to lower the rate at which AWI gets paid from 2 per cent to 1.5 per cent — a move which has already prompted cuts to services, such as pest control.

R&D should be ‘core purpose’

Steve McGuire, a director of Wool Producers Australia and a member of WAFarmers’ livestock council, cautioned AWI against paring back investment in research and development.

Mr McGuire said AWI’s “core purpose” was R&D but the organisation had shifted too much of its focus towards marketing and advertising in recent years.

“They’ve acted appropriately in cutting back on their marketing spending significantly because it was obvious that there wasn’t much point in spending that money,” Mr McGuire said.

“I would like to see R&D spending stay close to where it was.

“The thing for me is we have to get used to producing wool at what the market says it’s worth and that comes down to productivity.

“That’s where the research dollars need to go in to allow us … to be more productive so we can actually make a dollar out of selling wool at these lower prices.”

Blue-sky projects should be spared

Digby Stretch runs 11,000 head of merinos at his farm in Kojonup, about 260 kilometres south-east of Perth, in WA’s Great Southern region. His sheep operation is largely focused on wool production.

He said if AWI did cut spending on research and development, it should not be at the expense of long-term projects.

“We certainly don’t want to see any cuts to any blue-sky projects — on places that we know we’re going to have to go with issues like public perception of how we deal and work with our animals,” he said.

“Those things have to remain front and centre and stay there. We can’t be seen to be dropping the ball on those issues.

“R&D is a logical spend on making sure we can bounce back quickly when it does happen.”

$100 million in the bank

According to Mr McCullough, AWI would look to prop up spending as much as it could by dipping into $100 million of cash reserves it had in the bank.

He said actions could include investment in “demand creation … in markets where we start to see commerce return”.

“We have good amounts of reserves that we built over the past 10 years with better times … and the board is very willing to draw down on those reserves and put more money back into the business.”

Cuts to director and management pay on the table

Mr McCullough said the board was also looking at cutting pay for directors and management in a bid to ease the burden, though he did not say by how much.

For Mr McGuire, cutting board and executive remuneration would be a sign of good faith but he urged AWI not to squander money by chasing non-existent demand.

He said AWI would be better off helping growers overcome perennial cost challenges, particularly pest control in sheep and shearing costs.

“Creating demand is pretty difficult in this environment,” Mr McGuire said.

“So, they’ve got to be very careful of the marketing spend.”

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