Wool Company A ‘Catalyst For Catastrophe?’

31 July 2008

Wool Company A ‘Catalyst For Catastrophe?’

The wool industry is being asked to support a new wool company and eventually to finance it despite it having no name, no chief executive, no business plans, no prospectus and no financial projections.

Most exporters, brokers and private merchants see the proposals as a recipe for disaster that could have catastrophic effects on wool grower incomes, says Wool Exporters Council member Peter Crone, who has strongly refuted claims of industry consultation.

"The Wool Industry Network, which sponsored the new company, met with the Exporters Council about the time of the release of their Catalyst for Change document.

"We told them that they had it wrong and invited them to sit down with us to jointly develop an industry strategy. That was the last contact that WIN made with the Council. That was some 18 months ago.

"Some of our individual members have talked with WIN since then but anyone who thought differently to their pre-conceived plans was immediately excluded from the loop. Because of that it is doubtful that they are still in discussion with anyone," Mr Crone said.

“WIN walked into a large exporters’ office in the same city for the very first time last week. They were not there to talk about the industry, but to complain about a press release,” Mr Crone said. “Meat and Wool New Zealand chairman Mike Petersen can’t claim that as constant dialogue.

“They have talked to a few exporters, but only a few and they certainly haven’t listened. They are all about structure rather than strategy and seem hell-bent on a ‘go it alone approach’.”

Mr Crone said Woolmark executives had also tried but not been able to make appointments to talk with Wools of New Zealand, another company Mr Peterson is a director of. This just the “same old, same old” in terms of not wanting to work with the wider industry.

“Woolmark wanted to talk about ways New Zealand could participate in world initiatives that are already successfully promoting crossbred wool, but the grower entities did not want to listen,” Mr Crone said.

“For the first time in the history of the wool industry there is a united view that there is an urgent need to help woolgrowers stay in business and make money,” Mr Crone said. “But 99 percent of the industry says that the Wool Industry Network concept for a new wool company is flawed and it is more likely to be a major disruption than an asset to grower incomes.”

He said Meat and Wool New Zealand chairman Mike Petersen was out of touch by more than a decade in terms of his comments about the then Wool Board and International Wool Secretariat squandering growers’ money on promotion.

“That experience shows what happens when organisations like the one he represents get their hands on big amounts of money. These boards soured growers’ appetite to fund any promotion and that’s left the door wide open for synthetics.

“The Fernmark, the last New Zealand specific grower brand, was the real Catalyst for Change. It convinced growers to stop funding promotion, one of the primary reasons for the current low wool price. Why will a new brand do anything different?

“Woolmark is a much leaner, fitter and targeted organisation today and they’ve got an offer that New Zealand needs to at least consider,” Mr Crone said.

“There is a chronic lack of any detailed facts about the new wool company and an enormous vacuum of information. There is a lot of flash marketing speak but no hard facts.”

The new company is apparently valued at $37.5 million and has been trading since July 19. PPG Wrightson has had to lend the new company the purchase deposit of $10 million in cash.

Mr Crone said the new company will need investment and continuing wool growers’ business to survive. It says it will be asking growers for $20 million to pay back the $10 million deposit and to provide some liquidity for ongoing trading.

“Calculations we have been given, based on the current PGGWrightson wool throughput, show that the new company will have to create a new premium of at least 45 cents/kg just to service the debt. That is assuming that they retain that share, which is very doubtful and is before they add any new marketing costs.

“The environment for attracting investment money from sheep farmers could not be any worse than it is at the moment and wool grower confidence has never been at such low ebb.

“Many have farewelled their sheep in favour of dairy, cereals or just growing grass and selling it to the dairying industry as supplementary feedstock.”

The new wool corporate co-operative hybrid is being sponsored by the Wool Industry Network, which has been given more than $5 million-- $3.2m from growers through Meat and Wool New Zealand money and $2m taxpayer money from Trade and Enterprise to be the “catalyst for change”.

Mr Crone said there were parallels between the new wool company and the proposed PPG Wrightson Silver Fern Farms hybrid.

Meat company chief executive Owen Poole is quoted as saying that hybrid structures were a problem because corporates and farmers competed for a financial return.

Alliance had Freesia Meat Holdings as a 37 percent shareholder and the tension around the allocation of profit made the co-existence uncomfortable.

“It was a good day for both parties when that arrangement ended,” Mr Poole told journalists.

Mr Crone said farmers would easily relate to hybrid vigour in sheep. They know from experience that there’s lots of activity at the start, but performance peters out very quickly to levels below where you started.

“With this hybrid company, any initial vigour will also be artificial and short-lived”.

ENDS

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