Wool Export Culture Must Change

Wool prices will keep sliding, unless there is a big change in the way wool is sold, according to Growerco director Ed Kight.

Growerco is a co-operative wool supply and marketing venture which plans to seek investment from growers and other industry players in the new year.

“Some major players in the wool industry are selling the notion that contracts with overseas mills, and a direct line of sight from the grower to the end user, will cure the industry’s ills,” Mr Kight said.

“These concepts are important, but they are only part of the picture. On their own they won’t increase wool prices.

“The ongoing plunge in wool prices will only be turned round when there is a change in the industry’s selling culture.

“Growers also need to realise that three-quarters of the NZ strong wool clip is sold to third world markets or to merchants elsewhere. It is simply not credible to talk about vertically integrated marketing and pretend you have a global marketing strategy for the clip.”

In Mr Kight’s opinion, many major wool exporters were professional operators with a good understanding of their customers’ needs.

“However, they are operating in a system which makes it extremely difficult for them to ‘lock-in’ customers,” he said.

“An undifferentiated commodity, predatory export pricing and an undue fixation on the spot market used to be features of dairy and lamb marketing. Of our major pastoral exports, only wool is still sold in this manner.

“The evidence is there for all to see: real prices for wool are declining about three times as fast as other commodities.”

Mr Kight said Growerco would work with its exporter partners to change the way wool is sold into all markets – not just high value niches. It would be greatly aided in this process by having a committed wool supply equal to at least one-third of the crossbred clip.

“There have been mischievous suggestions that Growerco would try and use its critical mass of wool to muscle mills into paying more for supply. Nothing could be further from the truth,” he said.

“Our objective is to use technology to differentiate our wool and to use this, with a package of other services, to build customer loyalty. It is critical that we change the culture so that the cheapest price is no longer the dominant factor in the selling equation.

“The only muscle we would flex, would be to require our exporter partners to adopt terms of trade which maximised Growerco’s price opportunity.

“For example, we would want to move away from selling forward more than 12 months in advance, and selling forward at prices below the current market. And we won’t use profits from one part of our business to cross-subsidise another part.

“The big merchant scourers have traditionally used these practices to win market share, resulting in price destruction and poor shareholder returns.”

Mr Kight said reforming the selling culture of the industry would take time and commitment. But if the industry was to survive and thrive, there was no other option.

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