Australian Wool Innovation told its shareholders last week that it is monitoring actions by PETA closely to ensure it does not violate a 2007 settlement in which it agreed not to threaten boycotts against retailers selling products made from its merino wool.

AWI provides research and development and marketing services to  Australia’s wool farmers, who are its shareholders. The organization agreed in 2004 to stop using the controversial mulesing process by Dec. 31, 2010. Mulesing is the process by which ranchers surgically remove the wrinkled skin on the backside of merino sheep to eliminate crevices that can harbor fly larvae – a condition know as flystrike.

PETA, or People for the Ethical Treatment of Animals, has been protesting the practice for years as inhumane, although various veterinarian organizations have said it is an acceptable treatment until other methods can be developed. Many New Zealand merino wool farmers have stopped using mulesing under pressure from companies like Icebreaker and SmartWool.

In an April 3 letter to shareholders, AWI Chairman Ian McLachlan accused PETA of falsely telling retailers in Europe, Asia and the United States that the organization was walking away from its commitment to phase out museling.

“Nothing could be further from the truth,” McLachlan wrote in his letter. “However, PETA has relayed the accusation to apparel retailers and hence sought to undermine the standing of the Australian wool industry with its customers.”

AWI is maintaining a watchful eye on PETA’s activities and may take further legal action if PETA breaches its settlement agreement of June 2007. In that settlement agreement PETA agreed to no longer threaten a retailer, which chooses to stock Australian wool products, with a consumer boycott.”

McLachlin said surveying by the Western Australian Department of Agriculture and Food indicates that 23% of sheep producers intend to “note mules their lambs this year, compared to 11% in 2005.”