Velvet co-operative deplores lack of market discipline

December 16, 2011

Velvet co-operative deplores lack of market discipline

Market disciplines of the past two seasons have “gone out the window” in the free-for-all that was now evident in sales to New Zealand’s main deer velvet markets of Korea and China.

Recent announcements by one broker for producers to expect velvet returns 10% lower than last year and published prices $15/kg lower than early season’s opening sales were a self-fulfilling prophecy says ProVelco Co-operative Ltd General Manager Ross Chambers.

“Selling deer velvet is no different than any other business. You need to develop good relationships with customers who want steady prices for a product that is delivered when they want it, in the form they want it, and true to description. Raking velvet into a heap and expecting customers to turn up and bid for it just does not work anymore – in reality it never did,” Chambers said.

The 2011 season has seen a resurgence of brokers in the velvet industry and velvet was rapidly becoming “the great under-performer in New Zealand’s pastoral sector”. Dropping prices to make sales to suit a preference for quick turnover strips millions of dollars from deer farmers’ pockets.

Chambers said ProVelco started the selling season with its production volumes covered by contracts and advance payments but undercutting was making it hard to keep customer loyalty.

“Already we have had to re-adjust our contracted prices for several sales downwards so that our customers are not burnt by new market levels. Our customers were happy to pay more but when their competitors and traders are being offered product well below them they are instantly disadvantaged. If we want to keep their custom we are forced to follow the trend.”

As the world’s largest and most efficient producer of velvet, New Zealand had a huge competitive advantage which was being frittered away by ill discipline and an obsession with competition at the farm gate.

“We have models and proven cases from other primary industries of what can be achieved by producers investing in volatile markets. When your country is the world’s dominant player, there is no excuse for this sort of behaviour. We know that New Zealand’s deer farmers expect their chosen venison exporter to work hard to build durable, quality business and to act responsibly when establishing price levels so why not take the same approach to marketing velvet?”

It was disappointing that the New Zealand velvet industry was heading down the same failed path yet again. “You cannot force our three months of production into markets with year-round consumption unless you manage the process. Either the sellers/farmers manage that process or traders do. If traders get back in control their primary motivation is to maximise their margins and the easiest way to do that is to pay the producer less,” Chambers concluded.

ProVelco is 100% owned by growers and is completely independent with its own collection team and grading services and sells direct to its clients in China, Korea and Taiwan.

ProVelco aims to be New Zealand’s best exporter of deer velvet by providing a quality service to its shareholder suppliers with competitive returns while being honest, reliable and developing enduring relationships with our clients.

ENDS

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