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Win Offers Incentives—Growers Will Pay

20 August 2008

Win Offers Incentives—Growers Will Pay

Offers of large sums of promotional money direct to international wool manufacturers is once again on the agenda for the Wool Industry Network as a way to create business for its new grower co-operative hybrid company.

Evidence that a one-off $2 million offer has been made to at least one US manufacturer has been called irresponsible and damaging by wool exporters.

New Zealand Council for Wool Exporters president, Mr John Henderson, said that offering promotion money to the manufacturing sector was not the answer to building long term demand, price premiums and stability for New Zealand crossbred wool growers.

“Worldwide there is a whole generation of retail buyers who haven’t a clue about why they should choose woollen products ahead of synthetics,” Mr Henderson said. “We need to rebuild a broad spectrum of understanding about and a new demand for the special qualities of wool.”

“If that can be done, improved prices for growers and everyone else between them and the retailer will be a natural consequence.”

“Giving manufacturers a handout to promote a new New Zealand wool brand won’t hold their attention for long. This approach has been tried before by the Wool Board and by Wools of New Zealand and it failed.

They spent hundreds of millions of grower dollars proving that the manufacturer is primarily interested in it’s own brand and will only carry a second brand where someone else is both funding and doing the promotional work.” Mr Henderson said.

“Payments such as this aren’t actually used for promotion, they only allow the use of that manufacturers product as a vehicle for other direct promotion spending by the supplier. Manufacturers will show some interest as long as the money lasts but when it’s gone, we’ll be back to square one”.

“Clearly, the Wool Industry Network offers to North American manufacturers are not about promotion but are an attempt to buy market share from the existing wool export system.”

Mr Henderson said these offers started before the new company was formed.

“Eventually these promotional funds will have to be recovered by clipping the ticket from any wool growers who commit to the new co-operative hybrid company, which still needs to give itself a name, appoint a chief executive and publish its business plan.

“Assuming a US customer is offered $2 million promotional funding, and then buys 1000 tonnes of New Zealand wool (which is unlikely), the increased price needed for the grower is $2/kg, just to break even. And if the intention is that the real price to the grower will increase then the customer will have to pay considerably more than that initial $2 /kg premium.

“How can a customer remain competitive with its end product if it pays significantly more for its raw materials but isn’t selling into a market with increased demand?

“The reality is that the so called “promotional money” is a subsidy from the seller to the buyer to make an artificially inflated raw material price look like the seller is achieving some magic premium over the real market price.

“It’s just more smoke and mirrors to con growers into thinking that the new company has something to offer when in reality it is an irresponsible interference with the market.”

“It is interesting that we have spokesmen for Meat and Wool New Zealand constantly saying that they have no mandate to use grower funds for promotion, yet their co-operative hybrid wool company will be working on promotion with retailers and consumers, at the same time WIN has been out offering promotional funds to manufacturers to switch away from their traditional suppliers to the new company,” Mr Henderson said.

ENDS

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