Consumer demand for formal clothing has slumped worldwide, leading to a collapse in global demand for fine Merino wool. Export contracts are backed by credit insurance to protect exporters against customer default, but credit lines have dried up due to the financial crisis.

According to William Lempriere, head of Melbourne wool exporter Lempriere, countries such as New Zealand, Canada and China have moved "swiftly and aggressively" to provide such credit finance - but not Australia.

"Without export insurance, Australian exporters face order cancellations and subsequent losses on stock," he said. "We are losing business to Kiwi and China-based competitors. This would involve virtually all Australian exporters."

Mr Lempriere said Australian exporters were being disadvantaged in a sizeable proportion of the Chinese market and virtually all of the European market.

Mr Lempriere said Australian bureaucrats were showing no sign of helping. "They have told us that the buyers can pay in cash, but that's commercially naive," he said.

Mr Lempriere said the Export Finance and Insurance Corporation (EFIC), part of the Department of Trade, used to provide credit insurance, but this was stopped several years ago when the insurance market was very liquid, and the task was taken over by private enterprise. However, with the global financial crisis, that liquidity had gone.

A spokesman for Trade Minister Simon Crean said the Government was concerned about the impact of the global recession on the availability of export credit insurance for the wool industry and was "actively looking at a range of options" involving assistance from the EFIC.