WOOL PRICE STABILISATION AND PROFIT RISK FOR WOOL USERS

It has often been suggested that more stable wool prices would lead to an outward shift in the long-run demand for wool. To assess this claim it is necessary to examine different sources of risk and instability in wool prices and their impact on the risk borne by wool users. A model is presented in which the input and output decisions of a wool processor are related to interactions between the wool and yarn markets. It is concluded that, if fluctuations in final demand or exchange rates are the major sources of instability, the long-run effect of stabilising prices is to increase the risk faced by wool users and reduce that faced by wool growers.