The Relationship Between the Price of Wool and the Relative Profitability of Sheep and Cattle Grazing in Australia and its Possible Effect on the Future Supplies of Wool and Beef

Abstract

An estimate of the long term elasticity of supply for Australian wool has been made by establishing the price of wool at which 457 farms in the BAE Sheep Industry Survey (1964-5 to 1965-6) would find beef production more profitable than producing sheep and wool. The calculation suggests that the long term elasticity of supply would be of the order of 1'7 to 2'5 depending on the year on which the calculation is based. The elasticities established in this way were used to estimate the long term supply of Australian wool assuming that the wool industry was exposed to prices similar to those prevailing in 1969-71 over a long period of time. If future wool prices are of the order of 35 to 40 cents per Ib, Australian wool production might decline by between 35 to 80 per cent and cattle numbers might increase by between 30 and 70 per cent at constant beef prices.