Domestic price of wool

The domestic price of wool has declined significantly over the past five years. Like many agricultural products the price of wool is characterised by a high degree of volatility. The price of wool in the United Kingdom depends on the level of world stocks of wool, the total size of sheep flocks, the relative cost compared to synthetic fibres and levels of world demand. The greatest source of demand for wool is from China, such that buying habits in China can have a notable effect on the movement in the price of wool. Demand for British wool has traditionally been linked to demand from carpet manufacturing, which is in turn linked to the housing market. Substitute synthetic products are dependent on petrochemicals for their production, which creates a positive relationship between the price of oil and the price of synthetic fibres. Cheaper synthetic alternatives can cause the demand for wool to wane and push down prices.

Wool is produced in about 100 countries around the world including the United Kingdom. Other major wool producing countries apart from the United Kingdom are Australia, New Zealand, Argentina, China, India, Iran, Russia, South Africa and Uruguay. According to latest statistics from the International Wool Textile Organisation, the United Kingdom produced about 32,000 tonnes of raw wool in 2019, which was about 2% of the world total.

Over the past five years, wealth increases in many developing countries encouraged shifts in consumer tastes to higher quality fabrics and textiles, such as wool, at the expense of cheaper alternatives. Demand from luxury clothes manufacturers in the developed world increased as fashions have changed in favour of suits, formalwear and knitwear. However, Merino's wool is much finer than many traditional UK breeds and has been favoured by producers. Australia is the largest Merino sheep farming region in the world and has benefitted from heightened demand over recent years. Coarser British wool, in contrast, has seen a reduction in demand which has caused prices to fall precipitously over the second part of the period. Oversupply has weighed on prices over the past five years. In 2020-21, the COVID-19 outbreak led to a slump in demand which led to a collapse in prices, falling by 44.7%.

Farmers Weekly reported disruptions in the supply chain linked to the coronavirus pandemic resulted in sales and prices falling. China, the largest processor of wool shut down its economy as part of measures to stem the spread of the virus which resulted in unsold stock of wool and oversupply. Although world economies have opened up somewhat, overall demand remains significantly below pre pandemic level. This has led to oversupply in the market to depress prices, with UK farmers storing large volumes of unsold wool as prices fall below production costs. Farmers reported that prices were significantly below production costs with some farms force to throw harvest onto compost as prices fell. In April prices were reported at 66p per kilogram, significantly below previous years, however easing lockdown measures have supported a recovery in prices. Prices rose to 82p per kilogram as of January 2021. Prices have expanded in line with rising demand and inflationary pressure. The average price of domestic wool is forecast to expand by 8.9% to 81p per kilogram in 2024-25.