sirospun - the economic gains from sirospun technology...

The economic gains from Sirospun technology

Brian Johnston, Vivek Tulpule, Max Foster and Karen Gilmour

ABARE RESEARCH R E P O R T 92.5 ABARE

O Commonwealth of Australia 1992

This work is copyright. The Copyright Act 1968 permits fair dealing for study, research, news reporting, criticism or review. Selected passages, tables or diagrams may be reproduced for such purposes provided acknowledgment of the source is included. Major extracts or the entire document may not be reproduced by any process without the written permission of the Executive Director, ABARE.

ISSN 1037-8286 ISBN 0 0642 17358 3

Australian Bureau of Agricultural and Resource Economics GPO Box 1563 Canberra 2601

Telephone (06) 246 9 1 1 1 Facsimile (06) 246 9699 Telex AGEC AA61667

ABARE is a professionally independent research organisation attached to the Department of Primary Industries and Energy.

ABARE project 7228.101 I

Foreword

This study of the economic gains from Sirospun technology is one of a number of papers ABARE will be publishing on applications of benefit- cost analysis in the economic evaluation of research and development.

In cooperation with the Commonwealth Scientific and Industrial Research Organisation (CSIRO), the International Wool Secretariat and the Australian Wool Corporation, work is in progress to qugntify the costs and benefits of CSIRO wool textile research. This information is needed in order to ascertain whether this is an area of research investment with high payoff for the wool industry and for Australia as a whole. The framework which is developed in the paper could also be applied to the evaluation of future wool projects.

BRIAN FISHER Executive Director, ABARE

March 1992

Acknowledgments

The authors wish particularly to acknowledge the contributions of Dieter Plate and Vince Williams of the CSIRO Division of Wool Technology at Geelong for the provision of background data, and of Chris Vlastuin and Bob Mayfield of the Australian Wool Research and Development Corporation who assisted with discussions on the international processing industry and on issues associated with modelling the Sirospun technology. Staff at the International Wool Secretariat's Wool Development Centre at Ilkley, United Kingdom, assisted with background data on wool production and processing. Colin Gore and his section at the Centre particularly gave generously of their time in discussion on the Sirospun technology. They also assisted with visits to Europe, Italy, Germany and Japan to discuss the adoption of Sirospun.

The project was supported by the Wool Research and Development Corporation, and their financial assistance is gratefully acknowledged.

Contents

Summary

1. Introduction 1.1 Background to CSIRO wool textile research 1.2 Approach to the evaluation

2. Background to Sirospun 2.1 Advantages and disadvantages of Sirospun 2.2 Development of Sirospun technology 2.3 Adoption of Sirospun 2.4 Resources invested

3. Modelling the economic effects of a new wool processing technology 3.1 Model overview 3.2 Economic effects of a new technology

4. The measured benefits of Sirospun 4.1 Basic assumptions 4.2 Annual benefits from cost savings: base model results 4.3 Patents, licensing and royalties

I

4.4 Other benefits 4.5 Benefit-cost ratios for Australian wool growers 4.6 Benefits and costs to other participants

5. Main findings and conclusions 5.1 Benefits of Sirospun 5.2 Discussion 5.3 Limitations of the analysis

References 53

Appendixes A Summary of Textabare model B Elasticities used in model C Derivation of base data for model

Figures A Key linkages in the model 17 B Changes in prices and quantities in the pure wool chain

resulting from an innovation 2 0 C Benefits from an innovation 22 D Cumulative probability distribution of benefit-cost ratio

for Australian wool growers 29

Tables 1 Adoption of Sirospun technology: numbers of spindles

purchased 2 Human resources invested by CSIRO and the International

Wool Secretariat in Sirospun and Thermosplicer 3 Real costs of developing and marketing Sirospun and

Thermosplicer 4 Distribution of the worldwide annual benefits of Sirospun

technology 5 Sales of Sirospun spindles and estimated royalties 6 Principal sensitivities of model parameters in determining

benefits to wool growers 7 Benefitxost ratios for Australian wool growers under

different adoption scenarios 8 Benefits and costs to various groups 9 Benefit-cost ratios, showing sensitivities to model

assumptions 10 Key elasticities used in model 1 1 World wool production: all types (greasy) 12 World production of fine wools (greasy)

13 World production of clean fine wool 14 Proportions of fine worsted yarns produced, by type 15 Quantities of fine worsted yams, by type 16 Quantities of apparel products produced from fine worsted

yams, by type 17 Farm-gate price for Australian greasy wool 18 Tops price for 17-24 micron wool 19 Synthetic staple prices for five major wool consuming and

processing countries 20 Pure wool worsted yam prices for five major wool

consuming and processing countries 21 Wool-poor worsted yarn prices for five major wool

consuming and processing countries 22 Synthetic yarn prices for five major wool consuming and

processing countries 23 Pure wool worsted fabric prices for five major wool

consuming and processing countries 24 Wool-poor worsted fabric prices for five major wool

consuming and processing countries 25 Synthetic fabric prices for Japan 26 Prices of selected apparel products 27 Weights of apparel products 28 Base prices, quantities and values used in the model

vii

Summary

ABARE, in cooperation with the CSIRO Division A CSZRO of Wool Technology, the International Wool invention, licensed Secretariat and the Australian Wool Corporation, is internationally carrying out a study of the economic returns to a number of CSIRO wool processing inventions which reached the stage of possible commercialisation during the ten-year period 1979-89. This paper contains the results of an economic evaluation of the wool spinning process known as Sirospun. The Sirospun wool spinning process was invented at the Division of Wool Technology laboratories in Geelong, Victoria, and, in its initial form, began to be transferred to the international wool processing industry with the assistance of the International Wool Secretariat in 1977. After some further development, the German firm Zinser was licenced to manufacture the technology in 1980.

Royalty payments on Sirospun technology have BenejZts include amounted to approximately $A5.6 million to date. share of royalties These are shared equally between CSIRO, Repco (now Warren and Brown), which contributed certain technical improvements, and the International Wool Secretariat. (These royalties, which can be expected to grow in line with future sales of the technology, have been included in the benefit-cost estimates reported here.)

The main advantage of the Sirospun process is a Sirospun reduces reduction in spinning costs for pure fine wool wool spinning costs weaving yarn. On average, Sirospun technology by avoiding one lowers the processing costs of spinning by 56 per stage cent. Weaving yarns are normally two-fold - that is, made up of two strands twisted together. Ordinarily the strands must be first spun and then 'two-folded'. Sirospun reduces cost by combining

Economic gains from Sirospun 1

spinning and two-folding, allowing a two-fold yarn to be produced in one step from wool top.

Advantageous to The economic effects of Sirospun are not restricted fabric producers ... to the wool spinning stage. Fabric producers are

also affected, in three principal ways. First, Sirospun yarns have slightly different weaving characteristics from conventional yarns, and this increases the costs of weaving by about 1 per cent. Second, because Sirospun yarns can be produced at a significantly lower cost than conventional yarns, part of this cost saving is passed on to fabric producers. The second effect outweighs the first, resulting in a net saving to fabric producers. Third, Sirospun fabrics have distinct quality characteristics, of which more is said below.

... garment makers, Cost savings at the fabric stage are passed down the and wool growers processing chain to pure wool garment makers. The

net effect is lower costs of producing wool garments and hence stimulation of consumer demand for wool products. This increase in final garment demand is, in turn, passed back up the production chain, increasing the demand for greasy wool, thus resulting in a higher price which benefits wool growers.

The modelled production chain Computer model of In order to estimate the magnitudes of these effects, production chain a model of fine wool production and processing

was developed which quantifies the linkages between inputs and outputs for the five stages of production and processing in the wool chain. The stages examined are greasy wool production, wool tops production, spinning, weaving and wool garment production.

The processes In the model, greasy wool in the fine diameter modelled range 17-24 microns is an input into wool top

(scoured and combed wool). Over 80 per cent of

2 ABARE research report 92.5

Australian wools are in this range. At the wool yam stage, wool and other fibres - mainly synthetics - are blended to varying degrees. For modelling purposes, blends are here classed as wool-rich and wool-poor according to International Wool Secretariat criteria. At the next stage, these yarns are woven into fabrics, here classed as pure wool, wool-rich, wool-poor and non-wool.

At each stage of the production and processing Modelling of non- chain there are also other inputs, such as machinery jibre inputs and labour. In the model, these other inputs are simply combined into a single aggregate 'processing input'. The model allows for substitution between the processing input and the raw material input at each production stage - in particular, for variation in the resources devoted to reducing losses of material.

Approximately 60 per cent of wool in the range Competitive effects of 17-24 microns is used in pure wool garments, 20 an advance in pure per cent in wool-rich garments and 20 per cent in wool spinning wool-poor garments. In the marketplace, these garments compete with each other and with non- wool garments on the basis of quality and price, and since Sirospun in its present form confers its cost savings only on pure wool yarn, this competition is affected in favour of pure wool garments. The model therefore includes cross-price relationships in demand. Ultimately, primary wool producers benefit from an increase in the sales of pure wool garments due to their lower price, as well as from the tendency of yarn and textile manufacturers to adopt a process which lowers pure wool processing costs.

The benefits flowing back to greasy wool producers, Sensitivity of model as well as those to consumers, depend on the results to parameter magnitudes of a large number of elasticities - that values is, relationships between prices and quantities, either produced or purchased, of intermediate and final


products. (Gains to manufacturers are assumed to be eroded away by competition, and are not estimated.) The elasticities used in the model were as far as possible derived from the literature, though some informed judgment was also required. While there is a large amount of information available on the responses of supply and demand for greasy wool to its own price, there is relatively little information available on the remaining elasticities required. The model was therefore run with a wide variety of alternative values of all elasticities, to identify those to which the results were most sensitive.

The benefit-cost ratio of Sirospun Comparison of The benefits of Sirospun need to be compared with costs and benefits the costs of the research, development and

commercialisation of the technology, in order to produce a benefit-cost ratio for the project. The costs were obtained from CSIRO and the International Wool Secretariat. To allow comparison the flows of benefits and costs over time were converted to present values using discounting procedures.

High benefit-cost Using a discount rate of 5 per cent, and a 'base' set ratios found of assumptions regarding elasticities and the extent

to which yarn manufacturers will use Sirospun, the present value of Sirospun technology at the world level was estimated at $8070 million, returning a benefit-cost ratio of 438. The estimated return to Australian wool growers (including the Australian share of the royalties) was also very substantial, at $908 million, with a benefit-cost ratio of 123. Indeed, the projected net benefits of Sirospun technology to the Australian wool industry more than cover the entire costs of the Division of Wool Technology over the period 1979 to 1989 (assuming a 5 per cent discount rate).


It can be seen that only a proportion of the net Factors affecting benefits flow back to Australia and Australian Australian share of wool growers, most of the measured benefits being net benefits to consumers worldwide. The parameters mainly affecting this proportion are the elasticity of supply of Australian greasy wool (the dependence of production on price obtained), the elasticity of demand for pure wool garments (its dependence on their price and on consumers7 income), various characteristics of the technology itself (such as the fact that it is specific to wool), and various elasticities of substitution between the raw material input and other processing inputs at each stage of the wool processing chain (measures of the controllability of material loss). Further economic research is warranted to obtain more accurate estimates of these parameters.

The commercialisation of a new technology The analysis drew attention to a number of features The technical aspects of the commercialisation of Sirospun. The first was of commercialisation the lag between the original invention and the commercial availability of the technology. Sirospun was invented in 1971 and became commercially available in a form attractive to industry in 1980, a lag of nine years. Furthermore, adoption was slow

I initially as manufacturers trying out the technology ' encountered a number of problems. One problem, of knot slippage, was eventually solved in 1986 with the introduction of another CSIRO invention, the Thermosplicer. Also, the special characteristics of Sirospun yarn, which produces fabrics that can appear more streaky than conventional fabrics, did not suit a number of manufacturers. On the other hand, Sirospun textiles have a number of positive quality features, which eventually came to be exploited by other manufacturers to produce a new range of lightweight pure wool garments. These garments were then effectively promoted as part of


the International Wool Secretariat's 'Cool Wool' program.

Contribution of the A second noteworthy feature of the development of International Wool Sirospun is the role played by the International Secretariat Wool Secretariat Development Centre at Ilkley,

United Kingdom, in its transfer to industry. The staff at the centre provided an important interface between the inventors of Sirospun and the international wool processing industry, overcoming impediments to the adoption of the technology. The staff were able to redesign and simplify a 'breakout' device that Sirospun requires in order to halt the spinning process should one of the two threads break. This improved the acceptability of the invention to manufacturers, and the International Wool Secretariat was able to secure new patents on the breakout device, extending the patent life of the whole technology.

Spinoff technologies Finally, a number of spinoff technologies and products seem likely to arise which can also be expected to benefit the wool industry in the future. One such technique, Sirofil, whereby a single wool thread is combined with a nylon thread, is now beginning to be commercialised. Though it is not possible at this stage to quantify the size of these spinoff benefits, they could well be significant.


Introduction

ABARE, the Commonwealth Scientific and Industrial Research Organisation (CSIRO), the International Wool Secretariat and the Australian Wool Corporation have cooperated in an evaluation of the economic benefits from research and development in wool processing by the CSIRO Division of Wool Technology. The work reported here, which was funded by the Wool Research and Development Corporation, was directed to quantifying the benefits and costs of one major wool processing innovation, called Sirospun.

1.1 Background to CSIRO wool textile research CSIRO has had a long involvement in wool research and development. Wool production has provided an important focus for research since the initial establishment of the Council for Scientific and Industrial Research (CSIR), the predecessor to CSIRO, in the early 1920s. Wool textile research was not formalised in CSIR until the late 1930s, beginning with work on shrinkproofing techniques. This work resulted in CSIR's first patent application, and the 'Freney-Lipson' process, as it came to be termed, was widely used during the Second World War to shrinkproof Australian and US defence-force socks.

Following the war, a Wool Research Trust Fund was established and this led to a major expansion in wool research, including textile research and development. Wool handling and processing research and development was spread over three CSIRO Divisions - Textile Industry, Textile Physics, and Protein Chemistry. In 1988 the Division of Wool Technology was formed by combining these three Divisions. It now operates, with over 400 staff, on three sites, at Geelong, Melbourne and Sydney. The Division relies on the International Wool Secretariat for the commercial testing of some of its inventions, as well as their commercialisation and transfer to the international wool textile industry.

1 1.2 Approach to the evaluation The economic evaluation of CSIRO wool textile research and development focuses on projects of the Geelong laboratory (the former Division of


Textile Industry) which came to completion during the years 1979-89. A ten-year period was chosen as being a sufficiently long time to provide a representative picture of the Division's research, and for a number of projects to have reached successful commercialisation and generated economic benefits.

The evaluation of the Geelong laboratories research and development effort is being undertaken in two stages. The first stage involves identifying projects that reached commercialisation between 1979 and 1989 and applying a benefit-cost framework to some of those projects. From the findings of Marsden, Martin, Parham, Ridsdill-Smith and Johnston (1980) on a different field of research, it might be expected that only a few projects would yield large economic benefits, many others would make small but still worthwhile contributions, while some would not (as yet, at least) have yielded any significant direct economic benefit. Research is a risky form of investment, and some projects are economically unsuccessful (even though they may make quite significant scientific contributions). In the second stage of the evaluation the intention is to identify innovations that have not succeeded commercially, and to investigate the specific reasons for that outcome.

This paper concerns the economic effects of one technology, Sirospun, probably the most economically significant contribution of the Division over the study period. This application serves to illustrate the method used and to highlight some of the difficulties involved in quantifying the economic gains from research on a manufacturing process.

The background to the Sirospun invention and its economic effects are presented in chapter 2. A model for quantifying the economic benefits of new wool processing technologies is outlined in chapter 3. Chapter 4 contains a description of how the Sirospun invention was incorporated into the model, and the findings concerning the size of the economic benefits flowing from this invention. It also contains sensitivity analyses showing to what extent the results are affected by variations in certain key assumptions. The main conclusions from the study are presented in chapter 5.


Background to Sirospun

Sirospun is a new wool spinning technique that significantly lowers the cost of spinning high-twist, pure fine wool yarns, and also has some effects on their physical properties. It was invented at the Geelong laboratory of the CSIRO Division of Wool Technology, and has been successfully transferred to the international wool processing industry with the help of the International Wool Secretariat.

Sirospun is being used almost exclusively at the fine end of wool yarn spinning (in the range 17-24 microns, and usually at the finer end of this range), to produce lightweight pure wool (as distinct from mixed or non- wool) woven fabrics suitable for high quality garments, such as men's and women's suits and women's skirts and blouses. Wool yarns at this end of the market require a high level of twist in the yarn, and this is where Sirospun offers the greatest cost advantage.

Australia is the major producer of wool in the 17-24 micron range, with just over 55 per cent of world output. Over 80 per cent of Australian wool is less than 24 microns. Sirospun is thus particularly relevant to the class of wools produced in Australia.

2.1 Advantages and disadvantages of Sirospun Sirospun is a spinning process that allows a two-fold (two strand) worsted yarn to be produced on a conventional ring spinning machine, dispensing with the need for spinning to be followed by separate two-folding and its attendant processes. The Sirospun process reduces yarn conversion costs, especially for fine wools, compared with conventional spinning and two- folding (International Wool Secretariat 1990). From data provided by the International Wool Secretariat, the cost saving is approximately 56 per cent of the processing costs of spinning.

Sirospun yarn is more extensible, less hairy and more compact in structure than conventional yarns. As a result, the fabrics produced from it are more air-permeable, have a more silky feel, are more lustrous in appearance and have better drape than fabrics made from conventional two-fold yarns (International Wool Secretariat 1990, p. 6). Sirospun yarns are particularly


suited to producing fine lightweight worsted fabrics for spring and autumn. Garments made from Sirospun yams have been the basis of the International Wool Secretariat's 'Cool Wool' promotion program.

Sirospun technology also appears to be adaptable to a range of new applications. An early example is Sirofil, an International Wool Secretariat development of Sirospun which produces fine wool single yarns using a nylon thread to hold the yarn together in subsequent processing. Such spinoff technologies could prove important for the wool processing industries and provide further cost savings.

Disadvantages of Sirospun yarns are that the fabrics produced can appear more streaky than conventional fabrics (due to variability in yam thickness), which can cause problems in some end uses, such as solid shade plain weaves and gaberdines (International Wool Secretariat 1990, p. 6). Weaving costs are slightly higher (about 1 per cent) than with conventional yarns because of slightly higher yarn breakage rates. The net result of these effects is to restrict the extent to which Sirospun will replace conventional spinning in the production of yarns for worsted fabrics.

In summary, the main benefit of Sirospun yams is their lower spinning costs. The fabrics produced also have more desirable qualities for some end uses than conventional fabrics. The main disadvantages are slightly higher weaving costs and unsuitability for some end uses, which limits the range of adoption.

2.2 Development of Sirospun technology It is always difficult to say exactly when the research leading to any particular result started, because research always builds on previous work. In the case of Sirospun, the effective starting date was here taken to be 1968, when J. Lappage of CSIRO invented a system of producing two- fold pure wool yarn on a slightly modified conventional spinning frame. This discovery led to a series of investigations and, in 1971, to the invention by J. Feehan and D. Plate of a second new method of producing yarn, initially called 'Twin-Spin'. Patents were taken out for the invention, which proved to have major advantages over the Lappage method, and resources were directed to making it industrially operational.

The first commercial mill trials of the system were conducted in Australia in 1976. These were very promising, and the International Wool


Secretariat's Wool Development Centre at Ilkley became involved in the international transfer of the technology. Machines were installed in the United Kingdom and Germany for commercial evaluation. Further development work was required on the 'breakout' device required to halt the spinning process (because of spinning being simultaneous with two- folding) should one of the two threads break1 Patents on a new breakout device were taken out in 1978 and further redesigns occurred during 1979. It was at this time that the name of the new spinning technology was changed to Sirospun.

In 1980 a German manufacturer of spinning frames, Zinser, was licensed to sell Sirospun on new spinning frames and also to convert old frames to the new system. Wool Development International, the commercial arm of the International Wool Secretariat, also became involved in converting old frames and manufacturing the breakout device. It also handles the royalty payments.

2.3 Adoption of Sirospun Adoption of Sirospun technology was relatively slow in the early years (1980-86), partly because of problems with knot slippage and the lower weaving efficiency of Sirospun yarns. As well, as has been mentioned, the fabric quality produced from Sirospun yarns was not acceptable to some manufacturers. More recently, adoption has been considerably boosted by another invention of the CSIRO Geelong laboratory, the Thermosplicer. This device, which became commercially available in 1986, has allowed the replacement of knots by a heated splice which is more reliable and less visible. This invention also reduced the 'streakiness' of the fabrics produced and the difficulties some users were having in the weaving stage.

The initial major users of Sirospun over the period 1978-86 were in Germany, United Kingdom and Japan (table 1). Subsequent purchases of the technology have mainly been in Germany and Japan, with moderate sales to a variety of other countries and, more recently, large sales to other Asian countries as well as Japan. Not all the sales to date have been for commercial use - many of the initial purchases were for trial purposes, and many potential users have chosen not to adopt the technology, for a

1 When one of the wool threads breaks but the yam continues to be produced with one thread instead of two, this condition is termed 'spinners singles'. It causes problems in subsequent yam quality.


1 Adoption of Sirospun technology: numbers of spindles purchased n

Germany 41 172 12 012 6 360 Japan 12136 1200 10376 United Kingdom 12 594 0 408 Australia 4 404 0 0 Other 40 970 1 375 4 944

Total 111 276 14 587 22 088

a Excluding sales of less than 400 spindles. Source: Data supplied by the International Wool Secretariat.

1989 (6 months)

Total no. %

variety of reasons. If all single Sirospun sales of less than 400 spindles are treated as trials, commercial Sirospun capacity at the end of 1989 can be estimated at approximately 162 500 spindles, and at the end of 1990 approximately 175 000 spindles, or just over 7 per cent of the world capacity of long staple pure wool worsted spindles. Recently the slowdown in international wool processing has affected sales (C. Gore, International Wool Secretariat, personal communication).

The commercial objective of the International Wool Secretariat is to increase adoption to 10 per cent of the global capacity of long staple weaving yarn spindles (including those for mixed yarns) over the next 10- 15 years. Since Sirospun is used only for pure wool yarns, and this can be expected to remain the case, the Secretariat target can be expressed as approximately 20 per cent of world spindle capacity for long staple pure wool weaving yarns.

2.4 Resources invested Resources have been invested in the Sirospun technology mainly by CSIRO and the International Wool Secretariat. Table 2 contains estimates of the human resources invested to date by CSIRO and the International Wool Secretariat. Work by private firms has been included in the Secretariat figures. The costs of the Thennosplicer are included because this technology has assisted the adoption of Sirospun. These costs are presented in 1990 dollar terms in table 3. (The large difference in costs per person is attributable mainly to the different nature of the stages of research performed at the two establishments and the different basis of the staff


2 Human resources invested by CSIRO and the International Wool Secretariat in Sirospun and Thermosplicer

CSIRO, Geelong Wool Development Centre a

(Scientific staff only) (All staff)

Sirospun Thermosplicer Sirospun Thermosplicer

staff-years staff-years staff-years staff-years

Total 20.0 5.3 80.0 0.4 l

a Including resources invested by private firms.

1 Sources: Data supplied by CSIRO and the International Wool Secretariat.

numbers used.) Total costs to date of the research, development and marketing of Sirospun, including the development of the Thermosplicer, are estimated at $10.1 million in 1990 dollar values.

This flow of costs needs to be compared with the estimated flow of benefits from Sirospun in order to produce a benefit-cost ratio and other measures of the rate of return on the investment. This requires the use of discounting procedures to bring to a common basis benefits received, and the costs incurred, at different times.


- - - - - 3 Real costs of developing and marketing Sirospun and Thermosplicer

International

CSIRO a Wool Secretariat b Total

Total 5 718 4 422 10 140

a Cost per scientist-year assumed to be $226 000 in 1990 Australian dollars. b Cost per staff-year assumed to be $55 000, again in 1990 Australian dollars. Includes costs to private firms.


Modelling the economic effects of a new wool processing technology

The introduction of a cost saving innovation in wool processing such as Sirospun will encourage the expansion of industries which adopt it. Such an expansion will eventually affect the consumption and prices of wool products generally, including greasy wool. In turn, the price changes due to the innovation will alter profits in different industries and the welfare of final consumers.

In order to estimate the economic payoff to different participants in the wool production and processing chain from investment in such a development, it is important to be able to quantify the interactions and linkages between producers and consumers of wool products. The nature of these linkages will affect the extent to which the innovation alters the consumption of wool products and eventually profits in the Australian greasy wool industry. To determine the extent of price and quantity changes following the introduction of the innovation, a partial equilibrium model has been developed which takes into account the various linkages among elements of the wool production and processing chain. A detailed specification of the model (called Textabare) is given by TulpulC, Johnston and Foster (1992); a summary of the model is provided in appendix A.

3.1 Model overview The Textabare model consists of supply and demand relationships for each commodity in the wool production and processing chain, aggregated at the world level except in the case of greasy wool production (where Australian production is distinguished). Producers are assumed to act as price takers (not as monopolists). Following Rose (1980), the introduction of an innovation is assumed to lead to a parallel shift in supply; that is, it is assumed to reduce production cost by the same amount per unit at all levels of output. The model generates the percentage changes to prices and quantities necessary to restore equilibrium in each period following the shifts in supply (and consequently demand, in upstream industries) due to the innovation. The price and quantity changes so obtained may be used to calculate the changes to producer profits and consumer welfare due to the innovation in each period. The benefits obtained in all future periods following the adoption of the innovation are discounted to obtain the present value.


It should be noted that because the model equations are solved in a linear form (see appendix A), the changes in price and quantity generated are necessarily approximations, since the actual relationships are unlikely to be linear. The larger the effect of the innovation, the greater the error likely in the estimates generated by the model. (For a discussion of this issue and possible implications for the model results, see TulpulC, Johnston and Foster 1992.)

The development of Textabare builds on earlier work by Mullen and Alston (1989), who developed a partial equilibrium economic model of the interactions between the world greasy wool and wool top industries and used it to evaluate the gains from cost reducing research in wool top production. The conceptual framework developed by Mullen and Alston was itself based on the treatments by Freebairn, Davis and Edwards (1982, 1983) and Alston and Scobie (1983) of general questions about the conditions under which producers at the farm level would benefit from downstream or off-farm research.

The model allows for five stages of wool production and processing, and explicitly represents the series of linkages from the production of greasy wool to the final purchase of garments (for details see TulpulC, Johnston and Foster 1992). The various production and processing stages in the model are shown in figure A. Australian greasy wool in the 17-24 micron range, and greasy wool in the same micron range from other sources, are inputs into wool top. At the yarn production stage, wool top and other fibres are blended to varying degrees, to produce pure wool, wool-rich, wool-poor and non-wool worsted yarns. These yarns are inputs into pure wool, wool-rich, wool-poor and non-wool worsted fabrics and garments. (Wool-rich and wool-poor are categories used by the International Wool Secretariat for statistical purposes.)

At each stage of production there are also other inputs such as machinery and labour. In this model, all such inputs are combined into a single 'processing input' at each stage (shown as PI in figure A). The model allows for substitution between these processing inputs and the raw material input at each production stage - that is, for increased processing inputs to reduce wastage, or the contrary.

It is particularly important to take account of substitution possibilities and economic linkages between non-wool fibres and wool. For example, an innovation which improves the profitability of using wool inputs compared


/ A Key linkages in the model a

Australian * greasy wool Rest-of-world

C ABARE * greasy wool

0 Wool top @+ Non-wool top

F-1 @.+ z;;l-rich Wool-poor

Pure wool 1 1

@ Wool-rich @.+ Wool-poor 1

Non-wool @ garments garments garments * garments

a PI: Processing input.

with other fibres will encourage producers to substitute into wool and away from other fibres. This increase in the use of wool will affect the price of wool and, hence, profits in the wool chain. Similarly, an innovation could affect the prices that consumers pay for wool garments compared with those for other garments. This will influence relative clothing purchases, and these demand effects, in turn, will feed back to affect the price of wool.

Beyond the greasy wool production stage, the model is aggregated at the world level, and thus trade effects are not represented and commodities are not differentiated on the basis of their location of production. Wool top from one source is assumed to be perfectly substitutable for wool top from any other source. Also, in order to keep the model relatively simple there is no distinction between types and qualities of products, other than the distinction between four types of yarn. Further, as the model is of a partial equilibrium type, economic and technical interactions between the


worsted and woollen system are ignored. These are not considered serious limitations for the study in question.

The linkages between different commodities in the model and the degree of market responsiveness to shocks such as the introduction of an innovation are determined by elasticities of supply, demand, and substitution2. For example, the greasy wool production stage and the wool top production stage are linked by the own-price elasticity of demand for wool - that is, how much wool top producers change their purchases of greasy wool in response to a change in its price. The markets for garments made from different fibres are linked by elasticities of substitution. which indicate the extent to which the purchase of garments of one type changes when the prices of other garments change.

Because elasticities determine the linkages between products and the extent of market reactions to shocks, they also influence the size of the benefits derived from an innovation in the wool processing chain, and the distribution of those benefits among the various industries in the production chain.

An important issue relating to the values chosen for the elasticities used in Textabare concerns the treatment of time within the model. In Textabare, benefits from innovations are calculated separately for each year (the benefits varying only with the extent of adoption), without regard to interactions between prices in different time periods. The model is thus not dynamic. The elasticities chosen for Textabare are measures of medium to long term responses. This enables the longer term effects of an innovation to be accounted for; whereas if short term elasticities were used, these effects would be ignored.

The elasticities used in this model are as far as possible based on an examination of the literature (see appendix B). Some of these elasticities, for example the own-price demand elasticities for fabrics, yarn, wool top and greasy wool, are determined by formulas in the model itself, based on the assumption that producers maximise profits and on assumptions about the types of technologies they have available in production.

2 An elasticity is the percentage change in any variable produced by a 1 per cent change in another variable. For example, the own-price supply elasticity of greasy wool is the change in its production induced by a 1 per cent change in its price. A substitution elasticity measures the change in supply of, or demand for, one commodity or service in response to a change in the price of another.


It has been assumed that industries beyond the greasy wool production stage receive only normal profits, as a result of competition. This assumption would appear to represent a reasonable approximation to actual industry conditions, as capital and information on technological processes are likely to be mobile in the medium to long term. Any above-normal profits earned from the adoption of a new technology (which provide the initial incentive for its adoption, but which would be difficult to estimate) are assumed to be rapidly distributed up and down the processing chain, through competition, so that the only beneficiaries in the long term are wool producers and purchasers of garments. One of the effects of competition among processors is that, wherever the new technology is advantageous, the less innovative firms have an incentive to adopt it to avoid being placed at a cost disadvantage relative to those which did so initially.

3.2 Economic effects of a new technology The economic effects of a new technology at any stage of the wool processing chain can be illustrated by reference to supply and demand diagrams. The key economic effects of a new wool processing technology that lowers the cost of producing pure wool yarn but not other yarn are shown in figures B and C. The supply and demand curves in these figures represent the total supply and demand for each pure wool industry (as distinct from those making or using mixed or non-wool yarns) in a single given period, and firms are assumed to act as price takers.

The first round effects, in a given period, of a new wool processing technology that lowers the cost of producing pure wool yarn are set out in figure B. The supply curve for greasy wool slopes upward, reflecting the presence of fixed factors in production such as land. The supply curves for processed wool products also slope upward, though only because increases in the output of a processing industry will ultimately lead to increases in the demand for greasy wool, raising its price and thus the costs of processed products. In other respects, unit costs are assumed to be independent of output3. Thus, supply elasticities are taken to be very high.

The adoption of a cost saving innovation in pure wool yarn production leads to a downward shift in the supply curve for pure wool yarn in the

3 The Textabare model reported also allows for the possibility that unit costs in processing industries are not independent of scale (see TulpulB, Johnston and Foster 1992). However, key model results for Sirospun are found not to be sensitive to whether this is the case.


Changes to prices and quantities in the pure wool chain resulting from an innovation

I I price A. Greasy wool Price B. Wooltop CABARE I

Price C. Pure wool yarn Price D. Pure wool fabric

Dl Dl Do Do

I I l * 1 1 1

Qo QI Q2 F

Quantity QoQlQ2 Quantity

I E. Pure wool garments

L ) ) I e

QO Q1 Q:, Quantity


given period (from S, to S, in panel C) resulting in a fall in its price (from P, to P,) and an increase in sales (from Q, to Q,). This price fall induces an expansion in wool fabric supply (So shifts to S , in panel D) and the price of wool fabric falls to P I . In turn, the fall in the price of pure wool fabric leads to a fall in the price of pure wool garments (from P, to PI in panel E). At the end of the first round, the level of output in each pure wool industry has expanded from Q, to Q, and prices have moved from Po to P, in the given period.

At the same time, the increase in production of pure wool yam (to Ql in panel C) increases demand for wool top from D, to D, in panel B, and the price of wool top also rises (from P, to PI) . Output in the wool top industry expands to meet the increased demand from the pure wool yarn industry, and as a result the demand for greasy wool from wool top producers must also expand (from D, to Dl in panel A). The increased demand for greasy wool raises its price (from P, to P I in panel A).

Second round demand and supply effects will also occur, as a result of interactions between pure wool and wool blend items. For example, the increase in the price of wool top will lead to an increase in the prices of wool blend products including garments (since the innovation reduces the costs of production of pure wool yarns only, not of blended yarns.) This will lead consumers to substitute out of wool blend items into pure wool items (represented by the shift from Do to Dl in panel E) , thereby generating a further increase in demand for all pure wool inputs including greasy wool. The demand curves for pure wool fabric and yam consequently shift to D , in panels D and C, and the demand for wool top and greasy wool shifts from Dl to D, in panels B and A. In the final equilibrium for the given period the prices for each product are P, and output levels are

Q2.

The gross benefits obtained from the innovation are shown in figure C. Wool top producers (or the owners of fixed factors of production in the greasy wool industry) gain additional profits (rents) equal to the shaded area P&BP, in panel A. Consumers gain to the extent of the shaded area P,CEFGP2 in the consumption of pure wool garments, but lose PIHIP, in the consumption of wool blend garments, the price of which has increased from P, to P,. These are the only welfare effects to be considered. As has been noted, the processing industries are assumed to be competitive, with the result that any profits due to the innovation are bid away.


I c Benefits from an innovation

Price A. Greasy wool producers 4

Qo Q2 Quantity

B. Purchasers: pure wool garments

Price C. Purchasers: wool blend garments

t


The sum of the increase in economic rents to greasy wool producers and the gain in consumer surplus to final consumers is the economic benefit generated by the innovation before allowing for research and development costs. The present value of the benefits obtained in all future periods may be evaluated by discounting.


4.1 Basic assumptions In order to estimate the net effect of Sirospun technology on the profits of greasy wool producers and consumer welfare within the modelling framework, some basic assumptions are needed concerning how widely the technology will be adopted, the magnitude of its effect on production costs, and the elasticities governing the interactions between sectors of the textile industry. To arrive at benefit-cost ratios, some discount rate must be chosen. Here, one set of these variables is termed the 'base scenario', and results for this scenario are given first. Results for alternative assumptions are included in section 4.5.

As noted in chapter 2, Sirospun lowers the processing costs of spinning pure wool yarns by 56 per cent but also raises fabric processing costs by about 1 per cent. From the prices given in appendix C a reduction in processing costs of 56 per cent is equivalent to a 25 per cent reduction in the total unit costs of producing pure fine wool yarn from wool tops. This unit cost reduction was introduced into the model at the pure wool yarn production stage together with a 1 per cent increase in the unit costs of producing a pure wool fabric.

The adoption of Sirospun, which began in the early 1980s, had reached 7 per cent of the world production capacity of long staple pure wool weaving yarns by 1990. In the base scenario it is assumed (based on advice from the International Wool Secretariat) that penetration of this market proceeds in a linear fashion after 1990, reaching a ceiling of 20 per cent in the year 2000. After the year 2000, use of Sirospun is assumed to remain at 20 per cent, and the cost savings generated are assumed to continue in perpetuity. (This of course does not mean that Sirospun technology will continue to be used for ever. It means that the cost savings provided by technologies which supersede Sirospun will build on those generated by Sirospun.)

The base assumptions regarding elasticities of supply, demand and substitution are given in appendix B.


4.2 Annual benefits from cost savings: base model results The estimated annual benefits to wool producers and final consumers, at the base 'ceiling' adoption level (20 per cent of long staple pure wool weaving yarn spindles) and with other base level assumptions, are reported in table 4. Australian greasy wool producers are estimated to receive an annual gain of $43.3 million and producers in the rest of the world $29.4 million (1990 values). For consumers, the net annual benefit is valued at $319 million. (The mechanisms underlying these benefits were set out in chapter 3.)

Other producers in the processing chain are assumed to pass the cost savings or increases up and down the chain without earning any additional rents or profits.

4.3 Patents, licensing and royalties CSIRO, the International Wool Secretariat and the Australian company Warren and Brown Ltd hold patents on aspects of Sirospun technology. CSIRO holds the patents on the original spinning technology which led to Sirospun, as well as a patent covering the breakout device used with Sirospun to avoid the problem of 'spinners singles' (see section 2.2). The International Wool Secretariat, which became heavily involved in the international transfer of the technology in 1977, also redeveloped the breakout device during 1978 and 1979, resulting in a new patent application

4 Distribution of the worldwide annual benefits of Sirospun technology a

Stage of production $m b

I Greasy wool - Australia

1 - Rest of world Total for producers

I Consumers - Pure wool garments 440.5 - Wool blend and non-wool garments -81.8 Total for consumers 319.0

a At the base 'ceiling' level of adoption, namely 20 per cent of world long staple pure wool weaving yam spindles. Does does not take account of royalty payments. b 1990 dollars.


in late 1979. The Australian company Repco (now Warren and Brown Ltd) was involved in the early commercialisation and testing of the technology in Australia and further redesign of the breakout device in Germany.

Initially (in 1977-1979) the royalty was an annual $A40 per spindle sold, but this met with great resistance from industry. In 1980, Zinser, a German manufacturer of spinning frames, was licensed to sell Sirospun on new spinning frames and also to convert old ones. The royalty was at that time changed to a once-only charge of approximately three times the previous annual royalty. The current royalty is DM60 per spindle, shared equally between CSIRO, the International Wool Secretariat and Warren and Brown Ltd. In 1990, at the then exchange rate, the royalty converted to $A48 per spindle.

The sales of Sirospun spindles and royalties over the period 1981 to 1990 are given in table 5. Two-thirds of the royalties to date of approximately $5.6 million have accrued to Australia via CSIRO and Repco (Warren and Brown). Those royalties accruing to CSIRO are assumed to be spent on wool research and therefore have been included in the estimates of net

5 Sales of Sirospun spindles and estimated royalties

Total

Spindles sold a

no.

Royalties b

a Data supplied by International Wool Secretariat. Excludes sales of less than 400 spindles. b At DM60 per spindle, converted to nominal $A using annual exchange rate. Royalties before 1981 were small.


benefits to Australian wool growers. Expected royalties on future sales have also been allowed for.

4.4 Other benefits Other potential benefits were mentioned in section 2.1: the opportunity Sirospun technology has provided to produce softer, lighter fabrics for use in spring and autumn garments, and the spillover effects of other technological developments such as Sirofil. It has not proved feasible to quantify these benefits. As regards the spillover effects, Sirofil technology is only now beginning to have a commercial impact, and attributing particular benefits as between Sirospun and Sirofil would be very difficult.

Any demand effects associated with the special qualities of Sirospun garments have been left out of the calculation of benefits for two reasons. First, Sirospun fabrics are not greatly different from wool fabrics produced from very fine wools using conventional spinning, having similar qualities such as lightness and softness of handle. As noted, they can have a more lustrous appearance and better drape, but how these characteristics may be translated into increased purchases of garments is difficult to estimate. Second, Sirospun wools have been the subject of considerable additional promotion through the 'Cool Wool' program of the International Wool Secretariat. Separating the demand effects of fabric characteristics of Sirospun garments (in some end uses) from the effect of this promotion would be extremely difficult if not impossible.

Because no attempt has been made to quantify either the spillover benefits or any additional demand effects associated with the characteristics of Sirospun fabrics, the benefits estimated in the paper can be considered conservative.

4.5 Benefit-cost ratios for Australian wool growers I Assuming a 20 per cent 'ceiling' adoption of Sirospun technology, and

discounting future benefits (assumed to continue indefinitely) at 5 per cent a year, the present value in 1990 dollars of the stream of benefits to Australian wool growers (or suppliers of fixed factors of production), was estimated at $A908 million including royalties. The costs to Australian wool growers comprise half of the costs of the CSIRO research, plus half of the Australian contribution to the costs of the International Wool Secretariat research, which is itself 65 per cent of the Secretariat costs

Economic gains from Sirospun 2 7

shown in table 4. When these costs are likewise discounted, their present value is $7.4 million. This yields a benefit-cost ratio of about 123.

This result rests on a number of assumptions, which will be considered in turn, beginning with the discount rate. The higher the discount rate, the less is the value placed on future benefits. The long run equilibrium real interest rate for the Australian economy may be regarded as an appropriate discount rate. Five per cent can be taken as a reasonable approximation to the long term discount rate for the Australian economy in this sense. (ABARE macroeconomic assumptions for the period to 1995-96 include a real interest rate for Australia of about 6 per cent.) However, some authors (See Department of Finance 1991) have suggested that for some purposes the use of a discount rate of up to 10 per cent might be appropriate. With a discount rate of 10 per cent the benefit-cost ratio falls to about 41.

Because of uncertainties as to future adoption levels and other model parameters, sensitivity testing was undertaken. In the first stage of the sensitivity analysis, the effects of varying all the model parameters were investigated. The parameters to which gains to Australian wool growers were the most sensitive were the elasticity of supply of Australian greasy wool, the elasticity of supply of greasy wool elsewhere, the elasticities of

6 Principal sensitivities of model parameters in determining benefits to wool growers

Parameter

Elasticity of supply of Australian greasy wool

Sensitivity value a

-0.47

Elasticity of supply of other greasy wool -0.12

Elasticity of substitution between wool tops and processing inputs into pure wool yam production

Elasticity of substitution between pure wool yam and processing inputs into the production of pure wool fabrics

Elasticity of substitution between pure wool fabrics and processing inputs into the production of pure wool garments

Price elasticity of demand for pure wool garments 0.18

Income elasticity of demand for pure wool garments 0.19

a The percentage change in the estimated annual benefits to Australian wool growers (at 'ceiling' adoption) for a 1 per cent increase in the model parameter value.


demand for pure wool garments, and various substitution elasticities. The sensitivities of the estimates of annual benefit at the base 'ceiling' level of adoption (and hence the sensitivities of the estimates of present value) to variation of these parameters are shown in table 6.

A Monte Carlo simulation version of Textabare allows the sensitivity of model results to be tested further (See TulpulC, Johnston and Foster 1992). In the Monte Carlo version, the model parameters are specified as following a triangular distribution which is completely specified by assumed upper and lower bounds and most likely values. Points from these distributions are drawn at random several hundred times to generate a cumulative probability distribution of the benefit-cost ratio. (For the most influential parameters, the upper and lower bounds used are given in table 9.) The cumulative distribution function provides a useful summary of the expected payoff to the project. From the cumulative distribution function of the benefit-cost ratio to Australian wool growers (figure D) it can be seen that (assuming 20 per cent adoption and applying a 5 per cent discount rate) there is a 50 per cent chance that the benefit-cost ratio exceeds 99 and close to certainty that it exceeds 1. However, there is only a 20 per cent chance it exceeds 135. These results, combined with the sensitivity results presented above, provide a considerable degree of confidence about the robustness of the model results.

Second, sensitivity to the 'ceiling' level of adoption of Sirospun was measured. Though the advice from the International Wool Secretariat was that the use of Sirospun technology could be expected to expand steadily

D Cumulative probability of benefit-cost ratio for Australian wool growers a -

-$ 0.8 3 EAMRE

# 0.6 a .

0 50 li)O Ratio 1% a 20percent adoption ceiling, 5 percent discount rate

200


over the next decade, some concerns exist regarding the commercial acceptability of the technology. As was noted in chapter 2, not all fabric processors and garment manufacturers accept the characteristics of Sirospun yarn, and this will count against the more widespread acceptance of the technology. The effects of two other adoption ceilings were therefore tested. First, it was assumed that Sirospun has already reached its adoption ceiling and that the 1990 level of use (7 per cent - see section 4.1) would be maintained into the future. This can be regarded as a very pessimistic scenario. Second, it was assumed that adoption will expand linearly 25 per cent, reaching this level in the year 2000. This is regarded as a highly optimistic scenario.

The results under the three scenarios are compared in table 7. It is evident from the 7 per cent case that Sirospun has already provided a high payoff for the Australian wool industry, with an expected benefit-cost ratio of 60 at a discount rate of 5 per cent and 25 at a discount rate of 10 per cent.

4.6 Benefits and costs to other participants The beneficiaries of Sirospun technology also include fine wool producers in other countries, and consumers (see table 4). The incidence of benefits and costs, and therefore the benefit-cost ratio, varies between groups (table 8).

At the world level, the prcsent value of all research and development and technology transfer costs for Sirospun is approximately $18 million in 1990 values. The present value of past and future benefits (those to wool growers and consumers only; royalty payments cancel out) is estimated at $8070 million in 1990 dollars, assuming an adoption ceiling of 20 per cent and a discount rate of 5 per cent. This provides an overall world level benefit-cost ratio of 438. From table 4 it can be seen that approximately 80 per cent of these accrue to consumers and 20 per cent to producers.

At the Australian level the benefits accrue almost entirely to wool growers, since Australia with its small population accounts for very little of the world's consumption of wool garments. (Australian consumers are assumed to receive 1 per cent of world consumer benefits.) Australia also bears most of the costs of the research and development and technology transfer. The net result is a benefit-cost ratio of 60, very much smaller than at the world level.


7 Benefit-cost ratios for Australian wool growers under different adoption scenarios a

Present Adoption value of research and ceiling b development costs

Present value of benefits

Benefit- cost

ratio

a At discount rates of 5 per cent and, in parentheses, 10 per cent. b Proportion of world capacity (in spindles) for production of long staple, pure wool weaving yam ultimately using Sirospun. c 1990 dollars.

8 Benefits and costs to various groups a

Present Present value Benefit-cost value of costs of benefits ratio

World 18.4 8 069.7 437.9

Australia c 16.3 973.9 59.9

Australian wool growers d 7.4 908.1 122.9

Other wool growers e 2.2 608.2 279.9

a At a discount rate of 5 per cent and a ceiling adoption of 20 per cent. b 1990 dollars. c Australian wool growers plus Australian consumers of wool garments. d Australian wool growers bear only about half the costs of CSIRO wool textile research (due to matching contributions from government) and of the Australian contribution to the International Wool Secretariat. Benefits include royalties paid to Australian organisations. e Other wool growers are assumed to bear about 35 per cent of International Wool Secretariat costs, though some of this share is likely to be borne by governments.


9 Benefit-cost ratios, showing sensitivities to model assumptions

Parameter varied a

Australian Other Parameter wool wool

value World Australia growers growers

None 437.9 59.9 122.9 279.2

Elasticity of supply of 0.8 428.6 47.8 96.0 222.2 Australian greasy wool 0.2 454.7 81.7 171.3 382.0

Elasticity of supply of 0.3 435.3 56.8 116.0 261.4 other greasy wool 0.1 440.9 63.4 130.8 299.6

Elasticity of substitution between wool tops and processing inputs 0.4 437.6 59.5 122.0 277.2 into pure wool yarn production 0.2 438.2 60.3 123.8 281.2

Elasticity of substitution between pure wool yam and processing inputs into the production of pure wool fabrics

Elasticity of substitution between pure wool fabrics and processing inputs into the production of pure wool 0.2 440.7 63.4 130.6 236.8 garments 0.1 435.1 56.4 115.1 261.4

Price elasticity of demand -1.2 308.4 60.4 127.2 289.0 for pure wool garments -0.8 566.6 59.5 118.6 269.4

Income elasticity of demand 1.1 634.7 65.9 131.2 298.3 for pure wool garments 0.5 238.7 53.8 114.4 259.7

a All other parameters held at their base values; adoption ceiling 20 per cent, discount rate 5 per cent.

For wool growers, both Australian and overseas, the benefit-cost ratios are much higher than that for Australia as a whole. For Australian wool growers this is because the Australian government meets approximately half of the research and development costs. Overseas wool growers receive the benefits of Sirospun technology through higher wool prices while bearing only about 35 per cent of the International Wool Secretariat costs and none of the CSIRO research and development costs.

These results appear to be quite robust to changes in model assumptions (table 9). For a wide range of assumptions regarding these model parameters, the basic results hold.


Main findings and conclusions

5.1 Benefits of Sirospun Sirospun has been a highly worthwhile piece of technology for the wool industry. While it is not possible to be precise about the level and distribution of benefits of Sirospun technology because of the complexity of the economic interactions involved, under a range of likely assumptions it is clear that it has paid off handsomely. Worldwide, the benefits are likely to be very large. Even for Australia alone they have been substantial, returning benefits to Australian wool growers with a net present value in excess of $900 million in the most probable scenario (assuming a 20 per cent ceiling adoption by producers of pure long staple fine wool weaving yarns, and a discount rate of 5 per cent). Even if a higher discount rate (of 10 per cent) is assumed, the estimated benefits are still in excess of $500 million, with a benefit-cost ratio of about 41. For comparison, the total cost of operating the CSIRO Wool Textile Division over the period 1979 to 1989 was approximately $200 million in present value terms at a 5 per cent discount rate.

These results depend on the chosen values of the parameters employed in the economic model of production and processing. Some of these parameters, particularly those relating to the price elasticity of substitution between the raw material input at each stage and the processing input (labour and capital), are not well known, and further research to develop more reliable estimates would be worthwhile. Other parameters, such as the cost saving effect of Sirospun, the price elasticity of supply of greasy wool and the price elasticity of demand for pure wool and wool-blend garments are better known but still uncertain. However, using extensive sensitivity analysis it has been shown that the key results are unlikely to vary substantially with plausible shifts in key parameter values.

1 5.2 Discussion A number of points can be made on the basis of the Sirospun evaluation. First, even when a technology offers substantial increases in productivity at one stage of the processing chain (in this case, a 56 per cent reduction in pure wool spinning costs) development and commercial adoption can


take some years following the demonstration of feasibility. In the case of Sirospun, the technology first became commercially available in Australia, following commercial mill trials in 1977. Following its transfer to the International Wool Secretariat in that year, it took another three years before the commercial manufacture of the technology was economically attractive, Over the period 1980-86 adoption was slow due to problems of knot slippage and lower weaving efficiency in Sirospun yarns. In 1986 the Thermosplicer became available - obviating the need for knots - and by then industry had gained more experience with Sirospun and its advantages were becoming clearer. It is expected that, once the general level of demand begins to recover from the present downturn, adoption of Sirospun will begin to increase again.

It is clear that any time that can be saved between invention and commercial adoption of a cost saving textile innovation can have a large payoff to the wool industry. This is where the International Wool Secretariat's Development Centre has an important role to play. By facilitating the commercial adaptation of a CSIRO technology in the major wool processing countries, it can increase the rate and ceiling level of adoption and thus the net benefits.

The second point relates to the relatively small proportion of the net benefits of a new wool processing technology that flow back to Australia. The key parameters affecting the proportion of benefits flowing back to Australian wool growers, in the Textabare model, are the elasticity of supply of Australian greasy wool, the elasticity of supply of greasy wool from other countries, the elasticity of demand for pure wool garments, and - to a lesser extent - various input substitution elasticities. Also, the degree to which technology is specific to wool is likely to be very important, although this was not explored formally in this case because Sirospun is in practice wool-specific.

The identification of the key factors affecting the payoff to Australian wool growers from technology that lowers the costs of spinning is a valuable step in itself. Knowledge of these parameters can be expected to assist in deciding whether a future project intended to save costs in pure wool yarn production is likely to be a worthwhile investment for the Australian wool industry. The parameters affecting returns to growers from advances in other stages of the wool processing chain could be assessed in subsequent work. This knowledge could be useful in determining the allocation of research funds over different production stages.


Third, the evaluation of Sirospun drew attention to the interrelations between the technologies in a processing chain. The early adopters of Sirospun found that the yarn was less salable to weavers than conventional yarn, because of higher fault rates and because the fabrics woven from Sirospun yarns had certain characteristics which did not suit all end uses. In particular, the 'streakiness' that was apparent in some Sirospun fabrics was not acceptable to some garment manufacturers. Later, some garment manufacturers learned to exploit this characteristic of Sirospun yarns to their advantage, using it to promote a new range of garments. This aspect was subsequently incorporated into the International Wool Secretariat's 'Cool Wool' program. The development of the Thermosplicer greatly improved the reliability of the Sirospun process.

Early problems in commercialisation can strongly influence industry attitudes to a new wool processing technology and significantly affect its rate of adoption. Thus, it is necessary to give close attention to this phase of the research and development program -the solution of associated upstream or downstream problems - if a new technology is to be understood and accepted by industry and its full potential benefits obtained.

5.3 Limitations of the analysis The limitations of the analysis need to be recognised. Only the main economic effects of a new manufacturing technology can be captured by a modelling approach. There are two main areas where the approach adopted here is likely to understate the net benefits from Sirospun technology. The first is that any pure demand effects from the quality features of Sirospun have been ignored. As noted above, Sirospun garments have some unique characteristics of benefit to consumers. The extent to which consumers are willing to pay more for such qualities could not be estimated from the data presently available.

The second class of benefits not accounted for are the spillover benefits. Sirospun technology is now being adapted by other wool processing researchers to provide a new set of technologies using similar principles. The International Wool Secretariat has developed Sirofil, for example, which allows the production of even finer yarns using a single worsted roving thread and a nylon thread to hold the yarn together. This type of yarn is already finding application in fine worsted garment manufacture. Other new technologies using the Sirospun principle are also under


development. Thus, the estimate of benefits from Sirospun technology given in this study could be regarded as conservative.

The advantages of evaluating any new technology within an economically consistent framework of the type provided by the Textabare production and processing model are that it focuses attention on the parameters that most influence the costs and benefits, and that it allows the comparative ranking of projects across different areas of (in this case) wool production and processing research and development. Now that the model is available, it will be relatively straightforward to apply it consistently to a range of CSIRO wool processing projects.


Appendix

Summary of Textabare model

A world-level economic model of the worsted wool processing chain known as Textabare has been used for evaluating the benefits from Sirospun. It incorporates linkages between the different outputs of the wool processing chain and allows for substitution between different fibres and types of garments and, in all production processes, between raw textile and processing inputs. The commodities included in the model are indicated in figure A in the main text; the production quantities and prices for each of the commodities in the model, and their derivation, are presented in appendix C.

Textabare is a partial equilibrium model. It consists of supply and demand functions for each product in the wool chain, all producers and consumers being assumed to act as price takers. A technical innovation is treated as a shock to supply, and in consequence to fibre demand, which leads to a temporary imbalance between the demand and supply of the inputs and outputs of adopting industries. The model is used to determine the changes in prices and quantities for commodities in the wool chain that would be needed to restore market equilibrium. Using this information, together with the revenues and costs in each industry, it is possible to evaluate the changes to producer profits and consumer welfare resulting from the innovation. A more detailed description of the model, and the derivations for each of the equations in this appendix, are given by TulpulC, Johnston and Foster (1992).

The output supply and input demand functions for the commodities in the wool chain are based on the cost functions applying in each industry. For a typical price taking firm producing output k using Nk inputs, the cost

I

function is:

1 where w (an Nk-dimensional vector) is the input prices faced by the firm; Q is the output of commodity k; Bk(w) is a quasi-concave, twice continuously differentiable function of factor prices; Ak is a constant; and

represents the effects of an innovation on the costs of the firm.

Economic gains from Sirospun 3 7

The supply curve generated by this cost function is linear in the output price (that is, dC/dR is a linear function of Q), and the price shift caused by the introduction of the innovation is the same for all output quantities. The input demand functions are not necessarily linear; their shape depends on the functional form of Bk(w) (see Tulpulk, Johnston and Foster 1992).

The supply and demand equations in the model are written in log- difference form with respect to changes in all independent variables, and are solved to generate the percentage changes in prices and quantities resulting from the introduction of the innovation. The log-difference equations are linear in all elasticities. The industry aggregate equations are taken to be of the same form as that for a typical firm.

The linearised aggregate supply difference equation is:

where q i is the percentage change in output k, p i is the percentage change in the price of output k, wl is the percentage change in the price of input i, E,k is the own-price output supply elasticity, E, is the elasticity of output with respect to the price of input i, and Pk is the proportion of output produced using the innovation.

At each processing stage, inputs other than fibre are treated as a single variable, which might be thought of as an amalgam of labour and capital and which is assumed to be in perfectly elastic supply - that is, the prices of each processing input are assumed to remain constant:

where wik = 0 is the price of the processing input in industry k.

The linearised input demand equations have the following form:


where xk is the percentage change in input demand, 17uk is the cross- elasticity of demand for input i with respect to input price j, VjPk is the elasticity of demand for input j with respect to the output price, M i is the number of industries using input i, and aik is the proportion of the total demand for input i in industry k.

The final consumer demand for each of the four products (garments of pure wool, wool-rich, wool-poor and synthetic textiles) may be expressed in first difference terms as follows.

where x ) is the percentage change in demand for thefth consumer product and V f g is the cross elasticity of demand between final products f and g.

It should be noted that a large number of elasticities is needed to define the equations underlying Textabare. Because consistent estimates of these may not always be available in the literature, symmetry and homogeneity restrictions have been applied to reduce the number of elasticities which need to be assumed (see TulpulC, Johnston and Foster 1992 for details).

The supply and demand equations given by (2), (3), (4) and (5) for each commodity may be solved simultaneously to yield price and quantity changes in each period following the introduction of an innovation. Because the equations are used in a linear (percentage change) form, the estimates of price changes obtained here should be regarded as approximations. Also it should be noted that there are no dynamic effects in the model - that is, price changes in one period do not affect variables in subsequent periods.

The benefits accruing in any one period from an innovation may be calculated from the estimated changes in price and quantity which follow

, its introduction. (The calculation is facilitated by the assumption, embodied in equation 1, that industry supply curves are linear.) Using an appropriate

1 discount rate, the benefits obtained in each future period may be aggregated to obtain an estimate of their gross present value. This estimate may be

1 divided by the present value of the costs of running the research project to obtain a benefit-cost ratio. (See appendix B in Tulpulk, Johnston and Foster 1992 for a discussion of the discounting procedure employed in Textabare and the technique used to evaluate single-period benefits.)

Economic gains from Sirospuri 39

Appendix Elasticities used in model

To define economic and technical linkages and substitution possibilities in the wool processing mode1 a number of elasticities are required. The elasticities used in Textabare have been obtained from a survey of existing literature together with the application of symmetry and homogeneity restrictions. In this appendix, the elasticity estimates preferred for use in Textabare are discussed and the elasticities are listed (table 10).

The supply elasticities used for greasy wool from Australian and from the rest of the world are 0.5 and 0.2 respectively. These reflect a broad consensus of empirical evidence (see ABARE 1990). For example, Dewbre, Shaw, Corra and Harris (1985) obtained an estimate of 0.86 for the long run own-price supply elasticity for Australian wool. Connolly, MacAulay and Piggott (1987) estimated a medium to long term own price supply elasticity for Australian greasy wool in the 0-19 micron range of 0.80, and a lower elasticity of 0.23 for wool in the 20-24 micron range.

Supply elasticities at the tops, yarn, fabric and apparel stages are determined by the extent of fixed factors in each industry (which might include specialised knowledge, for example). In this paper, it is assumed (see section 3.2) that supplies of these products are almost perfectly elastic with respect to their own prices (as distinct from the input prices); that is, the elasticity of supply for processed products is set at an arbitrarily high level.

Cross-price demand elasticities of downstream producers The cross-price producer demand elasticities required by the model are output constrained - that is, they are measures of the change in the demand for one input in response to a change in the price of another input (all other prices being constant) assuming that output remains unchanged. There is very little information available on such elasticities, and most of those used in Textabare are largely based on intuition.


10 Key elasticities used in model

Own-price elasticities of supply

Australian greasy wool (17-21 microns) Overseas greasy wool (1 7-2 1 microns) Wool top Other top Pure wool yam Wool-rich yam Wool-poor yam Other yam Pure wool fabric Wool-rich fabric Wool-poor fabric Non-wool fabric Pure wool garments Wool-rich garments Wool-poor garments Non-wool garment

Cross-price demand elasticities

Australian greasy wool/overseas greasy wool Australian greasy wool/processing input into wool top Wool toplnon-wool top Wool toplprocessing input into pure wool yam Wool toplprocessing input into wool-rich yam Wool toplprocessing input into wool-poor yam Other toplprocessing input into wool-rich yam Other toplprocessing input into wool-poor yam Other toplprocessing input into non-wool yam Pure wool yamlprocessing input into pure wool fabric Wool-rich yarn/processing input into wool-rich fabric Wool-poor yam/processing input into wool-poor fabric Non-wool yamlprocessing input into non-wool fabric Pure wool fabriclprocessing input into pure woo1 garments Wool-rich fabriclprocessing input into wool-rich garments Wool-poor fabric/processing input into wool-poor garments Non-wool fabriclprocessing input into non-wool garments

Consumer demand elasticities for garments

Pure wool garments Wool-rich garments Wool-poor garments Non-wool garments

Own-price demand elasticity

Income demand elasticity

0.8 0.7 0.6 0.5

a Determined by homogeneity and symmetry restrictions.

Economic gains from Sirospun

Australian and overseas greasy wool are assumed to be highly substitutable, and the cross elasticity of demand between Australian and overseas greasy wool is set at 5. The cross elasticity of demand between wool top and other tops is set at 0.3. Ball, Beare and Harris (1989) estimated the long run cross-price elasticities of demand between wool and polyester and wool and cotton at 0.31 and 0.41 respectively. However, these estimates were based on the assumption that it is impossible to substitute between fibre and processing inputs (by varying the resources devoted to reducing waste). This assumption probably biased the estimates for fibre cross- price elasticities upwards.

Consumer demand for apparel Short and Beare (1990) estimated apparel demand elasticities from data on household apparel purchases in the United States between 1974 and 1986, using an expenditure share model. They found an average own-price demand elasticity for wool garments (combining pure wool and wool-rich garments) of around -1.1, an average own-price demand elasticity for men's synthetic garments of -1.67 and an average cotton own-price demand elasticity of -0.825.

In this paper the pure wool own-price demand elasticity for pure wool apparel is set at -1.0, and the own-price demand elasticities for wool-rich and wool-poor garments are set at -1.5. The elasticity of demand for non- wool garments is determined by symmetry and homogeneity conditions. Income elasticities for pure wool, wool-rich, wool-poor and non-wool garments are set at 0.8, 0.7, 0.6, and 0.5 respectively.

Given these own-price elasticities, cross-price demand elasticities between apparels of different fabrics were set so as to satisfy symmetry and homogeneity conditions.


Appendix

Derivation of base data for model

The construction of the data set for the wool processing model proved difficult. Because of incompleteness of published data at the world level for the products produced at each stage of the wool processing chain, much of the data had to be derived from unpublished information provided by the International Wool Secretariat (following a visit to the organisation in June 1989). The model, being representative of conditions in the wool industry in recent years, requires data that can be taken as currently typical. Where possible, the prices and quantities used are averages over a recent 3-5 year period.

Quantity data Tables 11-16 contain the quantity estimates used. The production of greasy wool at the world level over the period 1985-86 to 1989-90 is shown in table 11. Over this period average annual world greasy wool production was nearly 3200 kt, Australia producing on average 29.5 per cent of this total. Because the majority of Australian wool is at the fine end of the diameter range, Australia's world position is more dominant in the production of fine wools (table 12). Over the period examined,

11 World wool production: all types (greasy)

1985-86 1986-87 1987-88 1988-89 1989-90 Average

Australia 830 890 916 952 1109 939.4 Soviet Union 447 469 46 1 47 8 474 465.8 New Zealand 358 350 346 34 1 309 340.8 China 178 185 209 222 238 206.4 Argentina 152 150 157 164 161 156.8 Other 1 055 1 051 1 067 1 079 1 100 1 070.4

1 Total 3 020 3 095 3 156 3 236 3 391 3 179.6

Australia as percentage of total 27.5 28.8 29.0 29.4 32.7 29.5

Source: International Wool Secretariat.


12 World production of fine wools (greasy) a

1985-86 1986-87 1987-88 1988-89 Average

Australia 69 1 755 765 810 755.2 Soviet Union 29 1 305 300 3 14 302.5 South Africa 93 87 90 9 1 90.2 Argentina 58 57 60 62 59.2 Other 163 155 163 166 161.7

Total 1 296 1 359 13 78 1 443 1 369.0

Australia as percentage of total 53.3 55.5 55.5 56.1 55.1

a 17-24 microns. Source: International Wool Secretariat.

Australia averaged just over 55 per cent of total world production of fine wools in the range 17-24 microns. Table 13 contains the relevant data for clean wools and estimates of the quantity of wool tops produced.

In order to include the different relevant types of products in the model, products were classified into four categories - pure wool, wool-rich, wool-poor and non-wool. Data at this level of disaggregation are available from the International Wool Secretariat only for eight leading wool processing and consuming countries - Belgium, France, Germany, Italy, Japan, Netherlands, United Kingdom and the United States (table 14). From these data, and the world production of fine wool (table 13), the quantities of fine wool and substitute yarns produced worldwide in each

13 World production of clean fine wool a

Clean wool Wool

1985-86 1986-87 1987-88 1988-89 Average tops b

Australia 444 486 496 529 489 - Rest of world 305 302 310 315 308 - World 749 788 806 844 797 741

a 17-24 microns. b Average over the four years; assuming clean wool converts to wool tops with an average processing loss of 7 per cent (International Wool Secretariat).


14 Proportions of fine worsted yarns produced, by type

Type 1985-86 1986-87 1987-88 1988-89 Average

Pure wool 15 15 16 17 15.7 Wool-rich 8 8 8 8 8.0 Wool-poor 17 16 16 16 16.3 Non-wool 60 6 1 60 59 60.0

Source: Intemational Wool Secretariat (1989): data for eight countries - Belgium, France, Gemany, Italy, Japan, Netherlands, United Kingdom and United States.

category were estimated (table 15), assuming that the proportions provided for the eight leading wool processing countries applied to the world as a whole. This is probably a reasonable assumption, though it could not be validated. It was also assumed that wool-rich yarns (as defined by the Secretariat) contain on average 70 per cent wool, and wool-poor yarns 30 per cent.

In the same calculation, the world output of 'non-wool' staple' was obtained, assuming a processing loss of 3 per cent in conversion of this 'non-wool staple' to yarn (International Wool Secretariat). By 'non-wool staple', in this context, is meant those fibres which are combined with, or compete with, fine wools. (They are predominantly synthetic, and are referred to as such below.) The calculated annual world production of such material was found to be 2046 kt.

15 Quantities of fine worsted yarns, by type: average, 1985-86 to 1988-89

I Type Quantity

Pure wool Wool-rich Wool-poor Non-wool

Total 2 688

Derived from tables 13 and 14 (see text), assuming a 5 per cent loss on conversion of wool tops to yam (Intemational Wool Secretariat).


Similarly, given typical processing losses at successive stages of the processing chain (again provided by the International Wool Secretariat), estimates can be made of the quantities of apparel fabrics and products that are likely to be produced from these fine wool or substitute yarns (table 16). In practice, a proportion of fine wool yarn is not processed into fabric but knitted directly into apparel. This distinction is ignored in the current model. The quantities of wool and non-wool apparel products estimated in this way provide the base quantity data for the model. While some major approximations were required to derive these data, it is probably the best that can be done with the current International Wool Secretariat statistical collections on the wool processing chain.

16 Quantities of apparel products produced from fine worsted yarns, by type: average, 1985-86 to 1988-89

Apparel fabrics a

Pure wool Wool-rich Wool-poor Non-wool Total

Apparel products b

Pure wool Wool-rich Wool-poor Non-wool Total

a Average processing losses from yam to fabrics assumed to be 8 per cent for wool products and 5 per cent for non-wool products. b Average processing losses from yam to apparel products assumed to be 15 per cent.

Price data Tables 17 to 26 contain data on prices in the wool processing sector.

Table 17 contains auction and farm gate prices for Australian wool in the range 17-24 microns. The farm gate price is estimated by deducting 20 per cent of the auction price to allow for wool handling and auction selling costs based on Australian Wool Corporation information (Gabrys 1990).


1 7 Rrm-gate price for Australian greasy wool (17-24 microns)

Nominal prices Real (1990)

1985-86 1986-87 1987-88 1988-89 averages

Auction price a 3.7 4.2 6.9 6.8 6.7 Farm-gate price 3.0 3.4 5.5 5.4 5.4

a Derived from data provided by the Australian Wool Corporation.

The data on the price of wool tops (table 18) were converted to Australian dollars from quotes on the Bradford Wool Exchange (Wool Record 1989) for 64's A wool top, taken to be representative of fine wools in the diameter range considered. Over the period considered, the price of wool tops on the Bradford Exchange was on average 2.25 times the farm gate price of Australian fine wools.

Table 19 contains estimates of synthetic staple prices for five major wool consuming and processing countries, converted to Australian dollars. It can be seen that on average, over the period 1985-86 to 1987-88, synthetic staple prices were less than a third of the price of wool tops.

The production of yarns is the first stage of the processing chain that involves blending. Price series for pure wool worsted yarns, synthetic yarns and wool-poor blends were constructed (tables 20, 21 and 22). Data series for wool-rich yarns were not available, and their price was interpolated. On average, over the period 1985-86 to 1987-88, pure wool yarns were nearly five times the price of synthetic filaments and 1.6 times the price of wool-poor yarns.

18 Tops price for 17-24 micron wool


1985-86 1986-87 1987-88 1988-89 averages

Tops price a 7.6 8.6 9.8 12.9 12.1

a UK price of wool tops, 21 micron, derived from Wool Record (1989) and converted to Australian dollars.


19 Synthetic staple price for five major wool consuming and processing countries


1985-86 1986-87 1987-88 averages

Germany 3.0 3.8 3.7 4.6 Italy 2.6 3.2 3.0 3.9 Japan 2.9 3.3 3.3 4.2 United Kingdom 2.8 3.2 3.4 4.1 United States 2.3 2.5 2.2 3.1

Overall average 4.0


20 Pure wool worsted yarn prices for five major wool consuming and processing countries


1985-86 1986-87 1987-88 averages


Overall average 25.5


21 Wool-poor worsted yarn prices for five major wool consuming and processing countries


1985-86 1986-87 1987-88 averages

Germany 9.7 12.4 13.8 15.7 Italy na na na -

Japan 11.5 15.3 20.7 20.5 United Kingdom 10.3 na na 13.6 United States 11.8 8.0 12.8 14.3


na Not available. Source: International Wool Secretariat.

ABARE research report 92.5

- -

22 Synthetic yarn prices for five major wool consuming and processing countries

Nominal prices

Germany 4.1 5.5 5.8 Italy 3.7 4.3 4.4 Japan 3.0 3.5 3.8 United Kingdom na na na United States 3.2 3.4 4.0

Overall average

Real (1990) averages

na Not available. Source: International Wool Secretariat.

Prices for pure wool, synthetic and wool-poor fabrics are shown in tables 23, 24, 25. Again, data on wool-rich products were not available and had to be interpolated. Over the period considered, pure wool worsted fabrics were, on average, three times the price of synthetic fabrics and 1.3 times the price of wool-poor fabrics.

The construction of a data set for garment prices proved to be difficult. A wide range of products are produced from worsted fabrics, and price series for these products are not readily available. For the model, a representative set of prices is needed. A price data set was constructed by the International Wool Secretariat using data on a range of garment types for 1986-87 (table 26). Four apparel products were used to represent all garment types - men's and women's suits, men's trousers and women's

23 Pure wool worsted fabric prices for five major consuming and processing countries


1985-86 1986-87 1987-88 averages

$Akg $Akg $Akg $A/kg



Source: Derived from data provided by the Intemational Wool Secretariat, assuming an average fabric weight of 250 gramslm2.


24 Wool-poor worsted fabric prices for five major wool consuming and processing countries

Germany 37.1 Italy 37.2 Japan 38.8 United Kingdom 40.3 United States 40.8

Overall average


averages


25 Synthetic fabric prices for Japan


1985-86 1986-87 1987-88 averages

Japan 15.1 20.4 21.2 24.7


skirts. Prices for Italy, Japan and the United States were compiled for the range of product types needed - pure wool, wool-rich, wool-poor and synthetic. Considerable variation was found between the prices of similar products in different countries. In the absence of specific data on the quantities of wool and synthetics going into each product type in each country, the weighting of the prices of different products was not possible and they were simply averaged. This is an obvious area where further collection and analysis of data by the International Wool Secretariat could improve the data base for the model. Typical weights of product types (table 27) were then used to express these prices in Australian dollars per kilogram.

Table 28 contains a summary of all the base prices, quantities and values used in the model.

ABARE research report 92.5

26 Prices of selected apparel products, 1986-87

Italy

$A Men's suits All-wool 383.6 Wool-rich 335.7 Wool-poor 306.2 Synthetic 185.2

Women's suits A1I-wool 271.8 Wool-rich 291.8 Wool-poor 21 1.6 Synthetic 201.6

Men's trousers All-wool 82.6 Wool-rich 61.2 Wool-poor 59.2 Synthetic 50.2

Women's skirts All-wool 79.2 Wool-rich 56.0 Wool-poor 51.3 Synthetic 42.8

Average product prices b

All-wool Wool-rich Wool-poor Synthetic

Nominal prices

Japan United States Average

Price per unit weight a

Nominal Real

l a Using weights presented in table 17. b Simple averages. Source: International Wool Secretariat.


27 Weights of apparel products a

Men's suits Women's suits Men's trousers Women's skirts

Pure wool Wool-poor Synthetic

a Averages for eight countries - Belgium, France, Germany, Holland, Italy, Japan, United States, United Kingdom. Source: International Wool Secretariat.

28 Base prices, quantities and values used in the model

Greasy wool at farm gate Wool top Synthetic staple Pure wool yam Wool-rich yarn Wool-poor yam Synthetic yam Pure wool fabric Wool-rich fabric Wool-poor fabric Synthetic fabric Pure wool garments Wool-rich garments Wool-poor garments Synthetic garments

Real (1990) price Quantity Real (1990) value

$ billion

a The prices of wool-rich yams and fabrics were assumed to be midway between the price of pure wool and wool-poor yarns and fabrics.


References

ABARE (1990), Wool: Outlook and Options for the Future, Canberra. Alston, J.M. and G.M. Scobie (1983), 'Distribution of research gains in

multistage production systems: comment', American Journal of Agricultural Economics 65(2), 353-6.

Ball, K., Beare S. and D. Harris (1989), The dynamics of fibre substitution in the raw fibre market : a partial adjustment translog model. ABARE paper presented at the Conference of Economists, Economic Society of Australia, University of Adelaide, 10-13 July.

Connolly, G.P., MacAulay, T.G. and Piggott, R.R. (1987), Wool price stabilisation: net revenue effects by grade. Paper presented at the 31st Annual Conference of the Australian Agricultural Economics Society, Adelaide, 10-1 2 February.

Department of Finance (1991), Handbook of Cost-Benefit Analysis, AGPS, Canberra.

Dewbre, Shaw, Corra and Harris (1985), EMABA: Econometric Model of Australian Broadacre Agriculture, AGPS, Canberra.

Freebairn, J.W., Davis, J.S. and Edwards, G.W. (1982), 'Distribution of research gains in multistage production systems', American Journal of Agricultural Economics 64(1), 39-46. -- , and - (1983), 'Distribution of research gains in multistage

production systems: reply', American Journal of Agricultural Economics 65(2), 357-9.

Gabrys, M. (1990), 'Harvesting, marketing and distribution costs for Australian wool - sheep's back to overseas mill, 1990', Wool Technology and Sheep Breeding 38 (2), 44-55.

International Wool Secretariat (1989), Wool Facts, London. International Wool Secretariat (1990), Wool Yarn Technologies, Textile

Technology Technical Information Bulletin MP-31, Ilkley, United Kingdom.

Marsden, J., Martin, G., Parham, D., Ridsdill-Smith, J. and Johnston, B. (1980), Returns on Australian Agricultural Research, CSIRO and Industries Assistance Commission, Canberra.

Mullen, J.D. and Alston, J.M. (1989), The Returns to the Australian Wool Industry from Investment in Research and Development, New South Wales Department of Agriculture and Fisheries, Division of Rural and Resource Economics, Rural and Resource Economics Report 8, Sydney.


Rose, R. (1980), 'Supply shifts and research benefits: comment', American Journal of Agricultural Economics 62(4), 834-7.

Short, C. and Beare, S. (1990), Fibre substitution in retail demand for apparel. ABARE paper presented at the 34th Annual Conference of the Australian Agricultural Economics Society, University of Queensland, Brisbane, 13-15 February.

TulpulB, V., Johnston, B. and Foster, M. (1992), A Model for Assessing the Benefits of Wool Textile Research, ABARE Research Report 92.6, Canberra.

Wool Record Limited (1989), Weekly Market Report (Bradford, Yorkshire), 22 June (and previous issues).


sirospun - the economic gains from sirospun technology...

Documents

Transcript of sirospun - the economic gains from sirospun technology...