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Clear velvet marketing choices for farmers

Media release
11 December 2008
Clear velvet marketing choices for farmers

For more information, please contact James Guild, tel 03 318 6873 or Ross Chambers, 027 280 5586
The NZ Velvet Marketing Company (NZVM) will be a positive initiative if it puts some discipline into the way velvet is sold, says James Guild, chairman of rival marketer Velexco.
He says it also finally gives farmers a clear choice about who they want to control and develop their industry – commercial brokers or velvet producers themselves. 
PGG Wrightson (PGW) and Tasman Velvet Processors announced last week that they were merging their velvet marketing businesses under the NZVM banner. Farmer suppliers are being given the opportunity to have directors and a minority shareholding in NZVM’s marketing arm.
“PGW’s flirtation with the idea of selling their velvet business to farmers is clearly over. When Velexco made an offer during the winter to buy PGW Velvet for a price based on PGW’s own valuation formula, and which included PGW retaining both a shareholding and the procurement contract, it was declined on the grounds that it would be temporarily debt-funded and because of bad timing,” Mr Guild says.
“The fact that Velexco was not involved in the discussions leading up to the launch of NZVM shows that PGW and Tasman got cold feet about what producer ownership would mean for their revenue streams.
“Under the NZVM model, those velvet growers who take up shares may eventually end up with one-third of the marketing business, while the two parent companies maintain control. Ownership of the profitable collection, grading, brokerage and packhouse operations remains with PGW and Tasman.”
He says the purchase of the PGW velvet brokerage by Velexco would have been the quickest and cleanest way to achieve velvet market reform. Nevertheless, Velexco will continue to share market intelligence with NZVM where this is in the interests of velvet producers.
“But producers should not confuse NZVM with market reform. If PGW was serious about reforming selling systems it would have stopped tendering velvet at its weekly pools. It is hard to think of a better way to drive down prices than running auctions in a weak market.
“Brokers like PGW and toll processors and exporters like Tasman use the language of reform, but they are driven by margins and throughput. While they talk about maximising long-term velvet returns, their focus is short-term -- on generating cash for their owners.
“In contrast, Velexco decisions are made in the interests of its grower shareholders, each of whom – because of their substantial on-farm investment in velvet production – has a vested interest in the development of markets that offer stable and sustainable prices in the long-term.”
He says this difference in focus and philosophy lay behind the collapse earlier this year of three-way joint venture talks between PGW, Tasman and Velexco. In retrospect, he says, the differences were so great that a joint venture would have never worked. When these talks collapsed, and in response to PGW’s acknowledgement that the velvet supply chain should eventually be owned by producers, Velexco made its offer to buy PGW’s velvet business.
Mr Guild says Velexco is enjoying a surge in farmer support, with its market share increasing by 25 per cent last year and further increases in shareholders and volume for this season, despite a decline in New Zealand velvet production.
“More and more deer farmers now realise that commission-based selling systems have not served them well – that to achieve stability and a long-term future for velvet the only answer is the consolidation of marketing in a farmer-owned business that has strong relationships in the marketplace.”

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