In this edition of the Market Intelligence report we’ll focus on a demand-side issue, dealing with ageing populations in our traditional markets.
Demographic challenges in our traditional markets
We often hear of ageing populations in some countries, including our own. There are some important implications of these changes for the global wool apparel industry, especially for Australia as the dominant supplier of fine apparel wool used for suiting products. In the following, we’ll consider how changes in the proportion of working age people to might impact on our markets.
In demographic studies, the ‘Total Support Ratio’ (TSR) is sometimes used to indicate the impact that population ageing has on the proportion of wage earners in a population - comparing the proportion of working age people (e.g. 16 - 65 years of age) to those outside this age range and who potentially need to be supported (i.e. those 15 years of age or less, or older than 65). For the fine apparel wool industry, the relevance of the TSR lies in the likely linkage to the number of ‘white collar’ workers earning a salary and potentially investing in wool products such as wool suits.
The following chart is based on United Nations data (http://www.un.org.au/Information_resources.aspx) and compares the TSR applying in 2010, with that forecast for 2050, for Australia and some of our key retail markets. Changes in the TSR over the coming 40 years are shown as percentage figures on the chart.
Note that in all of the major wool markets and Australia, declines of around 25 to 40% in TSR are forecast over the coming 4 decades. Note especially:
- Japan, which has traditionally been our 2nd largest wool consumer market. The UN expects the TSR in Japan to decline by 41% to around 1.0 by 2050 (1 potential ‘worker’ to 1 potential ‘non-worker’). Over the same timeframe, the Japanese population is expected to decline by 14% due to negative population growth, and in combination with the TSR change, the working age population in Japan will decline by 31%.
- Germany, which has traditionally been our 4th largest wool consumer market. The UN expects the TSR in Germany to decline by 39% to 1.2 in 2050. Over the same timeframe, the overall German population is expected to decline by 9% due to negative population growth, and in combining with the TSR change, the working age population is expected to decline by 25%.
There are implications of these changes for the Australian wool industry, which supplies the great majority of the world’s fine apparel wool, especially that less than 20 microns.
Firstly, while we correctly tend to focus on the emergence of China and later India as affluent consumer nations in dominating our coming decades, we need to be mindful of potential threats to our traditional markets, which still very much dominate consumer investment in our products. Secondly, the ageing population challenge, as seen in the TSR figures I have presented, implies that market development opportunities need to be explored which target those outside working age (e.g. those past retirement age), or who are not working (e.g. on maternity leave).
Finally, AWI has been very active in exploring category development in a number of these areas. The sports/active outdoor area is one where grower funds have been supporting market development for a number of years, and MerinoPerformTM is an example of this. Another important example is the infants and maternity area, where we see much potential for market expansion. Success in these and related areas will complement our traditional markets and minimise the risks for the Australian wool industry associated with demographic change.