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Understanding The World Wool Market: Trade, Productivity And Growers’ Incomes

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  • GEORGE VERIKIOS

Abstract

Applying recent estimates of total factor productivity (TFP) growth on Australian sheep farms, we analyse the long‐run effects of TFP growth on the world wool market using a detailed model of the world wool market that treats raw wool, wool textiles and wool garments as heterogeneous commodities. The model divides the world wool market into nine regions and eight major industrial sectors capturing the extreme nature of the multistage production system through which wool passes. We find that regional sheep producer's welfare responds by between ‐0.9 per cent and 0.7 per cent assuming conservative TFP growth over the period 1995/96–2003/04. Sensitivity analysis shows the welfare effects to be robust with respect to all model parameters, but sensitive to the size of the TFP growth and the degree of TFP spill‐over. Our realistic representation of the multistage nature of the wool production system shows that wool inputs steadily decline in importance in moving from early‐ to late‐stage processing. This production structure indicates that the productivity of sheep farmers has little effect on the prices of and demand for wool garments. In contrast, trade in wool inputs is very responsive to the productivity of sheep farmers.

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  • George Verikios, 2007. "Understanding The World Wool Market: Trade, Productivity And Growers’ Incomes," Australian Economic Papers, Wiley Blackwell, vol. 46(1), pages 88-107, March.
    • Handle: RePEc:bla:ausecp:v:46:y:2007:i:1:p:88-107
    DOI: 10.1111/j.1467-8454.2007.00307.x
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    References listed on IDEAS

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    1. Villano, Renato A. & Fleming, Euan M. & Farrell, Terence C. & Fleming, Pauline, 2006. "Productivity Change in the Australian Sheep Industry Revisited," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25593, International Association of Agricultural Economists.
    2. George Verikios, 2004. "A Model of the World Wool Market," Economics Discussion / Working Papers 04-24, The University of Western Australia, Department of Economics.
    3. Arndt, Channing, 1996. "An Introduction To Systematic Sensitivity Analysis Via Gaussian Quadrature," Technical Papers 28709, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    4. Layman, B.D., 1999. "A Structural Model of the World Wool Market," 1999 Conference (43th), January 20-22, 1999, Christchurch, New Zealand 123691, Australian Agricultural and Resource Economics Society.
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    2. Mounter, Stuart W. & Griffith, Garry R. & Piggott, Roley R. & Fleming, Euan M. & Zhao, Xueyan, 2008. "An Equilibrium Displacement Model of the Australian Sheep and Wool Industries," Research Reports 37663, New South Wales Department of Primary Industries Research Economists.

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