Ben Lyons, Supply Chain Integrity and Knowledge Services Manager, Shanghai

Australian Merino wool: Science, art and evolutionTodayTomorrow

Product developments and innovationsPriorities for the future

The romance of Australian Merino wool: Science, art and evolutionTodayTomorrow

Product developments and innovationsPriorities for the future

Australian Wool Innovation (AWI) is the world’s leading Merinowool fibre marketing and innovation company.

AWI is a not-for-profit organisation investing close to $60 millioneach year in marketing & research.

Our goal is to build demand for Australian Merino wool andthe profitability of our shareholders: Australian wool growers

Who is Australian Wool Innovation?

Australian Wool Industry

30,000 farms1,000 sheep to 40,000 sheep10 bales to 1,500 bales13 micron to 40 micron0.0% to 25% VM55mm to 130mm10 to 65 N/Ktex30,000 different types of wool22,000 registered

Woolclassers

0

20

40

60

80

100

16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42

micron

mkg

gre

asy

Australia New Zealand South Africa Uruguay

Wool Usage and Fibre DiameterSource: AWI

carpets

filled bedding

women’s woven outerwear

Superfine merino19 um and finer

Merino20 - 24 um

Medium crossbred29- 32 um

Fine crossbred25-28 um

Broad wool32 um and broader

men’s woven outerwear

knitwearunderwear

socksblankets

upholstery

rugs

Wool has intrinsic properties that translate to garment functionalities that make it ideal for apparel use.

Natural BreathabilityNatural durabilityNatural stretch and drapeNatural odour resistanceNatural temperature controlNatural fire and static

resistanceNatural UV protectionNatural sweat and moisture

control

Wool: naturally absorbs water vapour and is breathable

Wool is an active fibre.

It is able to absorb and desorb moisture vapour as conditions around it change.

This gives wool is its fantastic ‘comfort’properties and makes it ‘breathable’.

The romance of Australian Merino woolScience, art and evolutionTodayTomorrow

Product developments and innovationsPriorities for the future

1.88%1.17%

36.91%

60.04%Clean Wool

Man madefibresCotton

Others

World Fibre Production – 2007 SharesSources: International Rayon and Synthetic Fibres Committee, Japan Chemical Fibres Association, AWI. Note: wool and cotton production on a seasonal basis (2006 = 2005/06), man-made fibres exclude olefin production.

Total: 65,450 mkg

World Wool Production and Supply (mkg clean)

1989/90 1995/96 2004/05 2005/06 2006/07 2007/08f

Australia 724 452 332 327 303 286

New Zealand 231 199 158 172 165 163

China © 103 131 174 176 177 178

Uruguay 68 56 28 34 35 32

UK © 51 46 29 29 27 28

Argentina 79 43 50 48 48 46

South Africa 59 37 28 28 28 26

Other 678 482 421 419 420 417

World Production 1992 1445 1220 1232 1203 1178

Stock Changes -384 22 -12 -2 33 n.a.

World Supply 1608 1467 1208 1230 1236 1178

f = forecast, (c) calendar year data 2006/07 = 2007.Sources: AWI, official statistics and industry bodies.Last updated 6 May 2008

0

20

40

60

80

100

Australian Wool Wool Cotton MMF*

Industrial

InteriorTextiles

Apparel

% 0.327 1.229 24.110 39.220

66%

26%

8%

Fibre Use by Sector – 2006(e)Sources: The Woolmark Company, ICAC, CIRFS, CMAO. Note: Man-made fibre includes oil based and cellulosic fibres

Fibre consumption (million tonnes)Total = 65.450

0

1

2

3

4

5

6

7

Aug-

98Au

g-99

Aug-

00Au

g-01

Aug-

02Au

g-03

Aug-

04Au

g-05

Aug-

06Au

g-07

0

1

2

3

4

5

6

7

Aug-

98Au

g-99

Aug-

00Au

g-01

Aug-

02Au

g-03

Aug-

04Au

g-05

Aug-

06Au

g-07

Wool to cotton Wool to synthetics

Long run average

Long run average

Wool Price Relatives - 21 Micron WoolSource: AWI, Cotton Outlook, PCI Fibres & Raw Materials. Data to April 2007.

Fibre Shares of Imports of Women’s Outerwear (Value Basis)Sources: Japanese Trade Statistics & US Dept. of Commerce. Womenswear includes suits, coats, jackets, trousers, skirts, dresses.

5%

15%

25%

35%

45%

55%

1998

1999

2000

2001

2002

2003

2004

2005

2006

Japan

Wool

39%

Cotton

Synthetics

48%

13%

5%

15%

25%

35%

45%

55%

65%

1998

1999

2000

2001

2002

2003

2004

2005

2006

US

Wool

28%

Cotton

Synthetics

65%

6%

Fibre Shares of Imports of Knitwear (Value Basis)Sources: Japanese Trade Statistics & US Dept. of Commerce. Knitwear includes sweaters/cardigans and similar.

20%

25%

30%

35%

40%

45%

1998

1999

2000

2001

2002

2003

2004

2005

2006

Japan

Wool

42%

Cotton

Synthetics

21%

37%

5%

15%

25%

35%

45%

55%

65%

75%

1998

1999

2000

2001

2002

2003

2004

2005

2006

US

Wool

66%

Cotton

Synthetics

26%

8%

Speed & ChangeGeographic Shift of early stage wool processing

0

50

100

150

200

250

300

350

1960 1970 1980 1990 2000

UK

Italy

Japan

China

Raw Wool Imports (Mkg*)

Australian Merino’s Environmental PathwayAustralian woolgrowers go beyond sustainability, they are working to improve

their natural environment ensuring the resource is available for generations to come.

The results of a Australian government survey of Australian woolgrowers found that:90% consider Natural Resource Management (NRM) a key component of their whole farm enterprise.91% woolgrowers were either actively doing something about natural resource management.

Improvements in Australia’s farm practices are aimed at rehabilitating land; halting and reversing the loss of native vegetation; improving water quality; and enhancing biodiversity.

Australian Merino wool growers

Care for and enhance the environment upon which they earn their living: “the environment is their lifeblood”

Improvements in Australia’s farm practices are aimed at rehabilitating land; halting and reversing the loss of native vegetation; improving water quality; and enhancing biodiversity.

The romance of Australian Merino woolScience, art and evolutionTodayTomorrow

Product developments and innovationsPriorities for the future

AWI LCA process

Source: AWI Expert Advisory Panel on Wool LCAFebruary 2008

• AWI initiated its LCA project in 2006, in partnership with CSIRO.

• Defined 3 typical supply chains• Fine wool, high rainfall -> Western European use• Medium wool, mixed enterprises -> Asian suits• Coarse wool, pastoral zone -> outerwear knits.

• Farm to retailed garment, then back to soil (complete life cycle).

• The project adopted ISO 14040 as a framework, and is focussed on water and carbon dioxide emissions.

Project Scope

3 typical enterprises 3 typical supply chains

High rainfall fine wool specialist18.5 um, Armidale or Western Vic

Sheep/Wheat Zone Mixed Enterprise20.5 um, Dubbo or Katanning

Pastoral Zone sheep specialist22.5 um, Burra or Broken Hill

Lightweight, fine gauge knitwearSupply chain via Italy to W. Europe

Mens/Womens Pure Wool SuitingSupply chain via China to Europe/USA

Woollen spun knitwearSupply chain via China/HK to Europe

Project Scope

Assumptions are critical

• Enterprise boundaries were defined such that we assumed:

• Non-irrigated extensive pasture• Sheep were allowed to urinate.• We did not count respiration (water returned to atmosphere).• Inputs split between wool and meat outputs, on a farm income basis.

• Did not include soil carbon sequestration, but estimated effects

• Included the carbon fixed in the wool fibre (45% of the fibre is carbon)

• Allowed for known garment wear life, and care

Source: AWI Expert Advisory Panel on Wool LCAFebruary 2008

Opportunities to reduce footprint

• The greatest challenge for Australia appears to be enteric methane, and globally, using and heating water as part of garment care.

• There is scope to reduce livestock emissions:• Substantial differences have been shown to exist within breeds of

cattle in amount of emissions, independent of diet.• Also, Red Kangaroos don’t produce methane, yet are a ruminant.

• Australian industry is looking at methods for reduction in on-farm emissions. As part of a $100 m investment by the industry and the Australian Government, researchers are looking intensively at developing required genetic and management tools for growers.

Gaps in our knowledge

The study identified many gaps in our knowledge:

• Carbon sequestration in soil – how much of an impact or opportunity?

• Garment wear life – durable vs. rapid turnover and replacement?

• Post-purchase use and disposal. We suspect most wool is recycled via Op shops, then into cardings, into geotextiles and insulation etc.

• Japan has run very successful clothing recycling campaigns

Summary

• It is critical to know environmental footprint, for long-term future.

• LCAs are built on assumptions .... rubbish in, rubbish out

• For the global wool apparel industry:

• Biogenic methane is the major contributor to the carbon footprint, and the Australian industry is developing tools to reduce enteric emissions.

• Garment care during normal wear accounts for most water consumption, and much energy (heating water).

• More research is needed to address gaps in our knowledge, and to generate opportunities to reduce key elements of the footprint.

Innovation: What is it?

Innovation:

“Developing Products which Retailers would want to sell, and Consumers want to buy”

Fashion Wovenwear (cont.)

MERINOfresh™

Based on the shower suittechnology

Currently transferring the technology to, Sunshine China), Raymond's (India)

Retail interest is highE.g. Hugo Boss, Perry Ellis

Luxury (Natural)

Commodity

Impractical Wearable

Challenge: Brand Positioning

0

30

60

90

120

150

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

0

5

10

15

20

25

30

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Cashmere

Mohair

Alpaca

18.0 um

A$/kg A$/kg

16.5 um & finer

Luxury Natural Fibre PricesMonthly

Source: AWEX, Wool Record, Seal International Data to June 2008. Wool prices are AWEX MPG.

Challenge: Delivering better handle in knitwear

Situation:

Handle is a critical issue at point of sale, and Australian Merino wool must be able justify its price.

CRC have established to develop suitable measurements, and work with knitters and retailers to implement these as a QA tool. Delivering better handle in knits

‘Softness to touch’ explains 50% of the variation in consumer perceptions of garment ‘exclusivity’, ‘high quality’ and ‘worth paying more for’

An objective assessment of knitwear handle and therefore value is important

Challenge: Delivering next to skin comfortSource: Sheep CRC

Delivering next to skin comfortSource: Sheep CRC

Wearer trialsSource: Sheep CRC

As the economy changes, as competition becomes more global, it’s no longer company vs. company but supply chain vs. supply chain. — Harold Sirkin, 1994.

Great firms will fight the war for dominance in the marketplace not against individual competitors in their field but fortified by alliances with wholesalers, manufacturers, and suppliers all along the supply chain. In essence, competitive dominance will be achieved by an entire supply chain, with battles fought supply chain versus supply chain. — Roger Blackman, 1997.

Product innovation is but one leg: supply chain integrity from farm to fashion is vital

Challenge: length of supply chain and knowledge transferSource: CSIRO/AWI

Challenge: technical know how and transfer

Traceability, Environmental and social compliance, Process integrity

Today

CSR; Green Woolmark; Fibre Origin

Next Three Years

Tomorrow

Intermediate product quality

Process Accreditation

Product Quality Certification

CSREngageme

nt

environment

employees & workers

society

supplier & producer

customer

company

AWI Corporate Social Responsibility (CSR)

Top Makers

Knitters/Weavers

Garment/Final Product Makers

Spinners

Retailers

US$ 400 US$ 5 US$ 5

The Eco- smart consumer notes that this “Onward” suit costs the same as other but $5 goes towards an environmental initiative

Consumer buys the product and Onward send US$ 5 to AWI, a non-profit R & D marketing company for wool in Australia

AWI distributes 100% of the collected funds to programs aimed at developing and improving the environmental management systems (EMS): the Bestprac group in pastoral areas and ALMS, a non-profit EMS certification provider

Bestprac and ALMS develop environmental and sustainability programs.

Underpinned by ISO 14001 certification and national level data on improved environmental conditions

Three winners.1. Consumer has a US$ 400 suit and has contributed to the improvement of the environment where the fibre for his garment came from. 2. The wool grower has funding and help to improve his natural surrounds and to improve and sustain his activity 3. The earth

$ustainability in other wool growing countries:expertise transfer to remote China 2006-09

Know how at work

ben.lyons@wool.com

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