Chinese magnate Qingnan Wen invests big in Aussie wool
As the world’s biggest wool processor, Tianyu Wool founder Qingnan Wen is determined to give back to Australia’s ag industry.
THE COLD mist and biting winter wind swirls across the lake and around the solid red brick homestead at Lal Lal Estate near Ballarat where Chinese textile millionaire Qingnan Wen has been living in splendid pandemic isolation for the past six months.
It wasn’t planned that Wen, chairman, founder and owner of China’s giant Tianyu Wool Industry, the biggest wool scourer and top-maker in the world, would live at the gracious Yendon sheep farm he bought in 2014 for so long this year. COVID-19, first in China then flight bans here, caught him out.
But for the 60-year-old businessman with a new love of Australian red wine, the enforced stay at Lal Lal has been no hardship. “I kind of got stuck here; it wasn’t intended but the good part is that I’ve been able to do a lot on the agribusiness and farming side of things,” laughs Wen, speaking through an interpreter.
“So I’ve been able to move along projects that I hadn’t been able to commit so much dedicated time to before; my heart is here in Australia and it’s where I intend to live and fulfil the dream that will be the last part of my career in the wool industry.”
And Wen has certainly been busy during his Australian stay. In March, he secured Foreign Investment Review Board approval to buy one of Victoria’s grandest and most historic rural properties, the beautifully laid-out Mawallok, near Beaufort, for $25 million.
It added to the portfolio of heritage pastoral holdings Wen has gradually been accumulating in western Victoria for the past six years. He has spent $75 million buying and then improving first Lal Lal ($20 million), the combined holding of Mokanger and Lewana farms west of the Grampians near Cavendish for $14 million, and most recently Mawallok.
The spending splurge has netted the Chinese fashion-designer-turned-wool-processing-magnate three iconic pastoral homes, 6000 hectares of some of Australia’s best grazing and wool-growing country – at an average price of $10,000 a hectare – and the capacity to run more than 60,000 Merino sheep.
It comes at a time when several major Chinese agricultural investors have pulled out of Australia, disillusioned at the lack of financial returns, climate volatility and difficulty in quickly boosting farm productivity.
Wen is adamant his commitment to western Victoria and the Merino wool-growing business is for the long term. There is also a good dose of altruism, of wanting to “put back” into an industry in which he has worked all his life and has helped create his wealth.
“I believe there is a big future in Australian agriculture; I’ve learned a lot in the past six years,” Wen says.
“I’ve lost money every year so it hasn’t been perfect. So you might ask, if I have been losing money at Lal Lal all this time, why am I buying more farms?
“It’s because I see such a brighter future; I can see why I’ve lost money and what I need to do to improve the business and turn that situation around – I want to look into the future in the way we manage our land and sheep, improve productivity and capacity, add scale and be more efficient.”
WEN laughs when he points out that, unlike most other successful business people in the agriculture sector, he didn’t start out as a farmer and then move into the processing and value-adding of his products to become a manufacturer. Instead, he has moved progressively backwards up the supply chain. He started out as a fashion designer in the late 1970s working in Paris and Italy using fine wool fabrics to make luxury suits, began his own fashion design label, then moved into wool textile manufacturing in China, before founding his giant wool scouring, cleaning and top-making Tianyu Wool empire close to the mighty Yangtze River at Zhangjiagang City, 140km upstream from Shanghai.
“It’s given me a good understanding of the whole wool industry and its supply chain, and how we all by working together might be able to make it better for everyone,” Wen says.
“I love this industry from the heart; I want farmers here in Australia selling the most beautiful Merino wool to have a better understanding of the needs of the whole supply chain; especially of the customers who are buying luxury clothes and goods made from wool, how they are looking not just for top quality but also want to know that it is environmentally friendly and that animals have been treated ethically.”
There is no doubt Wen knows what he is talking about. Tianyu Wool is the fourth biggest buyer of Australian Merino wool – and has been in the top five buyers for many years.
In 2019-20 Tianyu bought more than 100,000 bales of wool at auction in Australia – weighing more than 18,000 tonnes greasy weight, and representing 8.2 per cent of the entire $3.3 billion Australian wool clip. The previous year it imported 23,000 tonnes of Australian Merino wool, valued at more than $340 million.
Australian Merino sheep provide 80 per cent of the wool to satisfy the massive scouring capacity of Tianyu’s giant China facility, which processes 50,000 tonnes of greasy wool annually to produce 24,000 tonnes of clean wool tops – the biggest such facility in the world.
About 45 per cent of its wool “tops” – which look like glistening white fairy floss skeins – are sold to knitwear and wool-spinning textile manufacturers in China supplying the middle- to high-end clothing market, and the bulk exported to Italy, Turkey, Germany, Japan and Korea.
But Wen’s biggest fear – and one of the reasons he decided to become an Australian farmer – is his concern the Australian wool industry he loves so deeply is in its final throes, or at the very least in a death spiral.
The Australian Wool Production Forecasting Committee’s most recent figures show the national annual wool clip currently sits at just 281,000 tonnes of greasy wool, a 6.3 per cent decline from drought-affected 2018-19 and the lowest wool clip on record. The number of wool sheep (sheep being shorn) has also plunged to just 68.4 million, and only 30,000 farmers identify as wool growers.
At the peak of Australia’s wool boom in 1988-89, 192 million sheep and lambs were shorn annually, and the wool clip weighed more than 1.1 million tonnes, nearly four times bigger than today. In those days China bought just 4 per cent of Australia’s wool exports, now that share sits at 85 per cent.
“I am deeply concerned that Australian wool output is decreasing year by year, (because) with more people moving towards a green, natural and environmentally friendly lifestyle, as a natural fibre the demand for wool products will only continue to rise,” Wen says. “So we (Tianyu Wool) would like to encourage Australian wool growers to keep their commitment to wool, continue to improve their wool operations and production, and stay ahead.
WEN is adamant his purchase of Lal Lal, Mawallok, Mokanger and Lewana has nothing to do with vertical integration and trying to supply his Chinese mills with his own homegrown wool. The massive volume of wool his scouring and top-making plants consume means they would be kept busy for less than half a day a year with Wen’s fleeces.
Instead, his plan is to try to encourage more Australian wool growers to expand their flocks and grow more wool more efficiently, by demonstrating and sharing ways to boost sheep productivity and farm carrying capacity – and so profits – without harming the land or using more resources.
Wen is working towards turning Lal Lal into an experimental farm where wool growers, wool buyers, processors and fashion houses can meet and share new ideas and feedback to take the industry forward.
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The idea fits in with recent research showing high-value farms in the high-rainfall Western District of Victoria – the centre of Australian Merino fine wool growing – are operating on average at just 60 per cent of capacity.
Wen diplomatically steers clear of criticising Australian wool growers for being too complacent. “I’m not judging others because I am not a farm expert, but what I can do is learn to be a better farmer in Australia by taking the best advice and improving what I do here at Lal Lal and finding a better way – the opportunities and potential are here and I want to make it happen,” Wen says.
“Australia has a very strong agricultural background and farmers do talk to each other and share ideas, but maybe they are not innovative enough or accepting of new ideas.
“I think the resources are so good here and the land so spacious, that farmers can do pretty well without pushing themselves too hard; I see a lack of implementation of new technology and smart farming which would mean this land could be much more productive.”
Wen says it is not good enough for wool growers to keep on telling wool buyers they cannot produce fine Merino wool economically unless they get paid $30 a kilogram. He believes the fair price the customer and woollen market can bear – and he is prepared to pay in long-term five-year direct buying contracts with wool growers – is $18-$22/kg of greasy wool. That’s 50-80 per cent higher than the current wool price.
The way to make such a price work for farmers so they can expand their Merino flocks, Wen says, is to increase efficiency and lower the cost of production per sheep, as well as guarantee wool income certainty by removing price volatility.
He believes the focus should be on economies of scale – hence the purchases of Mawallok and Mokanger – to generate profits, plus a much greater emphasis on lifting land carrying capacity and the number of sheep that can be run sustainably on every hectare of land.
“We need to look into the future and talk about smart farming – doing more and better using technology – whether it’s improving soils, sheep genetics, management practices or reducing farm risk,” says Wen, who wants to see an end to mulesing because that is what wool clothing customers are demanding.
He is in a unique position to bring all parts of the supply chain together to discuss their issues and needs, from farmers to the Chinese processors and wool manufacturers who now buy 80 per cent of all Australian wool.
TOP Australian architect Leigh Ratcliffe – best known for his project management and vision for saving and shaping beautiful Palm Cove resort village north of Cairns – has been engaged to oversee the development of low-key accommodation across Lal Lal where farmers, wool processors and fashion designers will stay while engaged in industry meetings.
It’s a mix of shearers’ quarters, lakeside bungalows and secluded cabins among the red gum forests, with a conference centre and wool museum promoting the benefits of wool as the best natural fibre and ringed by grassy paddocks filled with the highly productive Merino sheep boasting lustrous fleeces.
“You have to understand this is not about money and profit,” Ratcliffe says. “Wen has always said to me that the wool industry has been very kind to him and he wants to put something back. He’s really concerned this wonderful industry is slowing down, even dying. I started off being sceptical and thinking the agenda was all about increasing Tianyu Wool Industry’s production back in China and protecting the supply chain for the next 20 years but I was totally wrong; his factories are immense and already running at full capacity.
“It is exactly what he says it is; this is all about a highly successful Chinese entrepreneur who feels very strongly about something – in Wen’s case the future of wool – doing something in Australia for the greater good. All he wants is to help a once-great industry with a great future get back on its feet; isn’t that the sort of foreign investor we want in this country and should be welcoming with open arms?”
With so much activity happening at Lal Lal, Wen is making his permanent home in Australia at majestic Mawallok, the 2350-hectare sheep property owned for generations by the famous grazing family, the Russells, who first settled the land in 1847, followed by the Mitchell family since 1980.
At its heart is the stately 10-bedroom homestead, where Wen will live, and his son Tony Wen – now managing director of Tianyu Wool globally – will visit, while his two adored grandchildren will attend secondary school in Melbourne.
More farm acquisitions in the Western District are also on the horizon as part of Wen’s quest to find the ideal “efficiency” and “balance” points for Merino wool growing, where scale, productivity and sustainability combine to equal profitability.
“Actions speak louder than words. As a foreign investor I need to integrate in the local community; I want farmers to understand I am investing here to work with them to help them improve the Australian wool and agriculture industry,” Wen says.
“I’m not doing all this research and work just to improve the efficiency and carrying capacity of my own farms; the focus is on co-operation and coming up with a model using new technology to lift efficiency and profitability that other farmers might use on their farms.
“This is the last part of my career, my dream, to achieve this and bring good things for the wool industry.”
WOOL CLEAR OF TRADE FEAR
WITH more than 80 per cent of Australia’s 281,000-tonne annual wool clip sold to China, the
$3 billion Australian wool industry has a greater reliance on the Chinese market than almost all other major rural products, including barley, wine and beef.
Yet the wool industry has not yet been hit by any direct fallout from the deteriorating relations between the Chinese and Australian governments, which started as a spat early this year in the wake of the COVID-19 outbreak in China.
It has since deepened alarmingly amid Australian calls for an international inquiry into the origins of COVID-19, heightened tensions in the South China Sea and the suppression of freedoms, riots and personal liberties in once-independent Hong Kong.
In late April, China’s ambassador to Australia, Cheng Jingye, bluntly warned the Australian Government that China may boycott Australian goods if relations between the two nations continued to deteriorate. China is Australia’s most important trading partner, with agricultural shipments alone totalling about $16 billion in 2018-19.
Three weeks later China clamped a prohibitive 80 per cent five-year “dumping” tariff on Australian barley imports, worth $1.38 billion in 2018-19, with China the buyer of 70 per cent of all barley exported by Australia.
Two days later, China suspended beef imports from four major Australian abattoirs, on relatively obscure labelling and health certificate requirements. China is Australia’s biggest beef market, taking 25-30 per cent of all beef exports, valued at $2.7 billion annually.
The $2.8 billion Australian wine industry, 40 per cent dependent on Chinese customers ($1.15 billion), and the deeply dependent dairy industry ($1 billion), are also bracing for similar “technical” import rules.
Reports from Beijing in late May suggested Chinese officials had drawn up a list of potential Australian goods that could also be subject to political retribution. It included seafood, oatmeal, infant formula, beef, wine and fruit, all able to be sourced from exporting nations other than Australia.
The $3 billion Australian wool industry was not on the list, and is keen to avoid any such similar fate. It hopes to be protected because such large quantities of Merino fine wool – China bought 271,000 tonnes of greasy wool from Australia worth $2.76 billion in 2018 – cannot be bought from anywhere else.
But already this year, since the pandemic hit, the average Australian wool price (Eastern Market Indicator) has plummeted 30 per cent from $16.09/kilogram in January to $11.16/kg in late July.
Eamon Timms, national wool brokerage manager with major buyers Fox & Lillie, attributes the price crash to the halt in the buying of Australian greasy wool by hard-hit India and Italy, as well as the closure of retail store chains and high-end fashion houses across the US, Europe and UK. It has left Chinese buyers snapping up about 95 per cent of Australian wool sales this year, but Timms is confident the price fall is all about coronavirus uncertainty rather than any Chinese market manipulation.
“The price is creating issues and challenges for growers, but this is not about a trade war; it’s just about the huge amount of uncertainty as everyone tries to get a handle on what the long-term consequences of coronavirus will be,” Timms says.
He says Chinese manufacturers really have no alternative to Australia as to where they can obtain mass volume amounts of Merino wool. “But the reality is that we would have a big problem if we couldn’t get our wool into China too, because nowhere else in the world has enough machinery to handle and process the (size of the) Australian wool clip.”
Tianyu Wool owner Qingnan Wen is confident the Chinese Government will not impose import embargo or new tariffs on Australian wool. “Tianyu communicates with the (Chinese) Government regularly,” Wen says. “So far, we have not heard anything about restrictions on wool.”
Australian Wool Innovation chief executive Stuart McCullough attributes the price downturn to the pandemic, with shops closed and locked-down consumers unable to leave their homes to buy new clothes, or unable to afford them once they can.
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