Ever since the Korean War over sixty years ago the price of wool has been in decline with a few upturns along the way. Over the period, the fortunes of wool growers have suffered from massive lifestyle changes leading to reduced demand for woollen textiles and fibres and the rise of synthetics with properties capable of imitating, if not matching, those of wool at a lower price. Wool is not the only natural fibre to be affected, with cotton being hit even harder, writes Allan Barber.
There are a remarkable number of parallels between the red meat and wool industries in the reactions to the situation which is not surprising given the respective price trends and the fact many of the farmers are the same individuals. Sheep and beef farmers’ opinions of the deficiencies of the meat industry are virtually identical to those of the wool trade, while proposed solutions are also remarkably similar.
The culprits in both cases are the traditional pantomime villains: privately-owned meat companies and wool merchants, brokers and exporters, neither of whom, so the argument goes, have much skin in the game apart from shareholder capital, in many cases held by overseas shareholders. The suggested solution to both problems is farmer ownership of the whole value chain which will supposedly retain financial control and ownership while at the same time ensuring sustainably better returns to farmers.
So far evidence paradise will result from farmer control appears to be something of a mirage, although it may be too soon to write off the prospect of success completely. One private wool buyer whose family has been in the business since the 19th century told me he doubted the vertical integration model, saying he wouldn’t think of telling farmers how to farm, but equally wouldn’t expect a farmer to know how to run his business.
Wools of New Zealand (WNZ), established in 2013 with grower capital despite failing to reach its initial equity raising target, is too early in its life to be called a failure. But the signs are not all positive although the PR remains very upbeat. There are plenty of rumours of growers who are unhappy with the contract prices they receive with substantial penalties deducted for colour and vegetable matter, up to 45 cents a kilo compared with 10 cents at auction.
A second issue is payment; WNZ’s Camira lambs wool contract payment is in three instalments over 15 months compared with 14 days after sale to a private merchant or at auction. Further the contract price of $6.25 per kilo applies to wool up to 30 micron which ignores the variation of up to 60 cents for wool between 27.5 and 30 micron. At the time of writing, the only wool type with a lower spot price than the Camira contract is 30 micron, so growers supplying lower micron wool would lose on the transaction, even before allowance for colour and VM discounts and interest costs as a result of the payment schedule.
A third factor is the 15 cents a kilo Wool Market Development Commitment levied by WNZ on a shareholder’s assessed annual wool production which applies whether or not growers supply all or part of their clip to WNZ. At up to $30 a bale, this can amount to several thousand dollars a year with little evidence of sizeable new premium markets being reflected in higher prices than can be achieved through the traditional systems.
Open criticism of WNZ is not yet frequently heard or expressed, either because shareholders are still prepared to keep an open mind or are unwilling to admit they might have made an expensive mistake or possibly they haven’t yet analysed the comparative returns. But there are definitely instances of growers who have reverted to supplying private merchants, after signing up as shareholders of WNZ. However, they will continue to receive six monthly accounts for the 15 cent WMDC which they are contracted to pay. It seems the only exit possibility for disaffected shareholders is to find a buyer for their shares, although these are infrequently traded.
The other cooperative option for wool growers is Primary Wool Cooperative (PWC) which has been in existence for more than 40 years and has a 50% share of Elders Primary Wool, responsible for the Just Shorn brand sold into the United States for high end carpets. PWC has over 1,000 members indicating a certain degree of satisfaction with the dividends and rebates paid, as well as the wool prices received. However, there is limited evidence the Just Shorn initiative has added substantially to growers’ incomes, but as with Camira this may be a matter of time.
The wool merchants and private buyers admit they will be accused of bias, but they say there are no new markets for wool driving any real increase in the wool price, while the rise in the past two seasons is due to demand exceeding supply, as sheep numbers fall.
Like the meat industry, the big question for wool growers is what sort of industry they really want. For all the talk of the need for cooperative farmer ownership of the value chain, it still appears a majority of farmers are actually satisfied with their merchant or broker relationship. Otherwise, surely, they would all vote with their feet and send their clip exclusively to a farmer owned cooperative.
But this just doesn’t seem to be happening in sufficiently large numbers to create the desired change claimed by supporters of the new model. The collapse of the milk price may well have taken the wind out of the sails of proponents of a Fonterra like system for meat and wool.
Allan Barber is a meat industry commentator. He has his own blog Barber’s Meaty Issues and can be contacted by emailing him at firstname.lastname@example.org.