Archive for the ‘Demographics’ Category

Wool trade still at crossroads

February 8, 2015

Ever since the Korean War over sixty years ago the price of wool has been in decline with a few upturns along the way. Over the period the fortunes of wool growers have suffered from massive lifestyle changes leading to reduced demand for woollen textiles and fibres and the rise of synthetics with properties capable of imitating, if not matching, those of wool at a lower price. Wool is not the only natural fibre to be affected, with cotton being hit even harder.

 

There are a remarkable number of parallels between the red meat and wool industries in the reactions to the situation which is not surprising given the respective price trends and the fact many of the farmers are the same individuals. Sheep and beef farmers’ opinions of the deficiencies of the meat industry are virtually identical to those of the wool trade, while proposed solutions are also remarkably similar.

 

The culprits in both cases are the traditional pantomime villains: privately owned meat companies and wool merchants, brokers and exporters, neither of whom, so the argument goes, have much skin in the game apart from shareholder capital, in many cases held by overseas shareholders. The suggested solution to both problems is farmer ownership of the whole value chain which will supposedly retain financial control and ownership while at the same time ensuring sustainably better returns to farmers.

 

So far evidence paradise will result from farmer control appears to be something of a mirage, although it may be too soon to write off the prospect of success completely. One private wool buyer whose family has been in the business since the 19th century told me he doubted the vertical integration model, saying he wouldn’t think of telling farmers how to farm, but equally wouldn’t expect a farmer to know how to run his business.

 

Wools of New Zealand, established in 2013 with grower capital despite failing to reach its initial equity raising target, is too early in its life to be called a failure. But the signs are not all positive although the PR remains very upbeat. There are plenty of rumours of growers who are unhappy with the contract prices they receive with substantial penalties deducted for colour and vegetable matter, up to 45 cents a kilo compared with 10 cents at auction.

 

A second issue is payment; WNZ’s Camira lambs wool contract payment is in three instalments over 15 months compared with 14 days after sale to a private merchant or at auction. Further the contract price of $6.25 per kilo applies to wool up to 30 micron which ignores the variation of up to 60 cents for wool between 27.5 and 30 micron. At the time of writing the only wool type with a lower spot price than the Camira contract is 30 micron, so growers supplying lower micron wool would lose on the transaction, even before allowance for colour and VM discounts and interest costs as a result of the payment schedule.

 

A third factor is the 15 cents a kilo Wool Market Development Commitment levied by WNZ on a shareholder’s assessed annual wool production which applies whether or not growers supply all or part of their clip to WNZ. At up to $30 a bale this can amount to several thousand dollars a year with little evidence of sizeable new premium markets being reflected in higher prices than can be achieved through the traditional systems.

 

Open criticism of WNZ is not yet frequently heard or expressed, either because shareholders are still prepared to keep an open mind or are unwilling to admit they might have made an expensive mistake or possibly they haven’t yet analysed the comparative returns. But there are definitely instances of growers who have reverted to supplying private merchants, after signing up as shareholders of WNZ. However they will continue to receive six monthly accounts for the 15 cent WMDC which they are contracted to pay. It seems the only exit possibility for disaffected shareholders is to find a buyer for their shares, although these are infrequently traded.

 

The other cooperative option for wool growers is Primary Wool Cooperative which has been in existence for more than 40 years and has a 50% share of Elders Primary Wool, responsible for the Just Shorn brand sold into the United States for high end carpets. PWC has over 1000 members indicating a certain degree of satisfaction with the dividends and rebates paid, as well as the wool prices received. However there is limited evidence the Just Shorn initiative has added substantially to growers’ incomes, but as with Camira this may be a matter of time.

 

The wool merchants and private buyers admit they will be accused of bias, but they say there are no new markets for wool driving any real increase in the wool price, while the rise in the past two seasons is due to demand exceeding supply, as sheep numbers fall.

 

Like the meat industry, the big question for wool growers is what sort of industry they really want. For all the talk of the need for cooperative farmer ownership of the value chain, it still appears a majority of farmers are actually satisfied with their merchant or broker relationship. Otherwise surely they would all vote with their feet and send their clip exclusively to a farmer owned cooperative.

 

But this just doesn’t seem to be happening in sufficiently large numbers to create the desired change claimed by supporters of the new model. The collapse of the milk price may well have taken the wind out of the sails of proponents of a Fonterra like system for meat and wool.

Challenge for A&P Shows to satisfy demands of new public

February 8, 2015

The 148th Warkworth A&P Show was held on the Saturday of Auckland Anniversary Weekend on a very warm day with no fear of rain which at least alleviated the committee’s first concern. In the north at least feed is still plentiful, although rain would be welcome, but there is as yet no major worry of drought; so we were able to plan the event and welcome the weather forecast without a guilty conscience. (more…)

Meat trade unrecognisable from 40 years ago

November 21, 2014

It is sometimes tempting to think nothing much has changed with meat exports in recent years when you read all the publicity about the problems in the meat industry. Since the beginning of this century the contrast with the dairy industry has been particularly marked, but suddenly this season the positions have been reversed. Sheep and beef farmers can hold their heads high again and it seems likely this state of affairs may even persist for longer than just this season. (more…)

Global animal protein trends become more complex

August 6, 2014

At the Red Meat Sector Conference Luke Chandler, General Manager of Rabobank’s Food and Agribusiness Research Advisory group in Australasia, presented an interesting perspective on global protein trends and the increasing complexity required to feed the world’s growing population. (more…)

Meat quality in restaurants constantly improving

October 24, 2013

The quality of domestic red meat supply both to the retail and catering trade has improved out of sight in the last 20 years because of stricter food regulations and the introduction of the Quality Mark. It has moved up another notch over the last five years or so, particularly since the global financial crisis. (more…)

Important not to let China dominate red meat sector

August 19, 2013

It’s a scary thought how quickly things have changed, but China has become one of New Zealand’s biggest markets for red meat, almost without any warning. (more…)

Dairy Restructuring Amendment Bill attracts different views

March 31, 2012

Fonterra chairman, Henry van der Heyden, says that monitoring the milk price is not necessary, but “we can live with it”, particularly with Commerce Commission oversight, while Simon Couper, Fonterra Shareholders’ Council chair, believes it to be draconian with the potential over time “to destroyNew Zealand’s biggest, most successful and most important export industry.” (more…)

Market diversification a risky business

January 24, 2012

An analysis of the beef trade withIndonesiaillustrates the difficulties associated with diversification away from traditional markets. While alternatives to theUSA,CanadaandNorth Asiaare desirable, for beef as well as offal and co-products which add significant value to the carcase, exporters must be prepared for frustrations caused by volatility in countries where they try to diversify their sales efforts. (more…)

Demographics alter consumer demand patterns

September 21, 2011

Demographic changes will present challenges for the red meat sector in spite of apparently unstoppable world population growth. Several speakers at the Red Meat Sector Conference made reference to the possible effects of these changes over the next 40 years, some of which will be positive, like the growth of the Indian and Chinese middle class, and others negative. (more…)