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Elders success creates problems for Meat & Wool NZ

01 May 2009

Meat & Wool New Zealand, the farmer-good organisation that took over from the Wool and Meat Boards in 2004, is seeking a renewed farmer mandate for the compulsory levies that fund its activities.

Because so much of its work is essential for the future of the sheep and beef industries, the organisation can't be allowed to fail. But it will be a struggle getting support for the increased levies it needs to maintain existing activities in the face of inflation and falling sheep numbers.

There's the usual farmer suspicion about the value for money they are getting from their own organisations. But with lamb prices on the up and up, that could be overcome.

More worrying is growing controversy about Wool Partners International - a joint venture between PGG Wrightson and Wool Grower Holdings. WGH began life as the Wool Industry Network (WIN), a marketing ginger group set up by MWNZ in 2005 with taxpayer assistance.

Although WIN was charged with unifying growers and delivering an "industry-wide vision" for the future of the wool industry, its definition of 'wide' did not come from the Oxford dictionary. In a continuation of a long tradition of would-be wool market reformers, WIN's consultation with exporters, merchants and most brokers was perfunctory at best, creating inevitable grievance.

Vitriolic debates about how to improve wool prices and the role of farmer-owned ventures in the supply chain have been a feature of farmer politics ever since Adam first put the rams out on Erewhon.

Given this history, it was inevitable that the WIN decision to set up the WPI joint venture with PGG Wrightson would create ructions. This was a challenge to many of the vested interests in the wool industry and competed directly with an existing farmer co-operative and its joint venture, Elders Primary Wool (EPW). From an accountability perspective it also involved shepherding farmers into a joint venture with PGG Wrightson, in which PGGW's wool division was valued at $37.5 million.

In December 2008, guided by PR impresario Iain Morrison, trade interests responded. Under the banner of the United Wool Marketers Group they argued that growers should not be interfering in the free market, but should join with sheep farmers around the world and promote wool over synthetics to a new generation of shoppers.

The creation of a groundswell of farmer opinion opposing reform is a tactic the industry has used successfully in the past, most notably during the Great Wool Debate of 1973.

But this time it didn't happen. Wool prices have accelerated downhill in recent years, even during the recent commodity boom. This and their failure to communicate with growers until presented with a threat to their business status quo, meant the trade had little goodwill or credibility to drawn upon.

In contrast, despite limited public relations activity, wool growers have been taking EPW very seriously indeed. A joint venture between stock firm Elders, wool exporter J S Brooksbank and farmer co-operative Primary Wools, EPW believes in creating a direct marketing link between the grower and consumer, backed by powerful brands.

While it shares this vision with WPI, the contrast in corporate styles between the two ventures could not be more marked. Low-key blokey EPW, which puts performance before promise, strikes a real chord with farmers. Many note with approval that EPW is performing in the marketplace without the support that WPI has enjoyed from the WIN initiative.

In contrast, the WPI hype machine is viewed with suspicion. WPI's purchase of PGG Wrightson's ailing wool division is seen as imprudent. And its exclusive access to the use of the Fernmark brand, developed by the Wool Board for the benefit of all growers, is seen as unfair.

Mandating and remandating levies under the Commodities Levies Act involves a huge amount of hard work by board members, senior executives and public relations teams. In MWNZ's case, none of them need the aggravation caused by WPI, which can only detract from consideration of the very many worthwhile things done by the organisation on the industry's behalf.

The news this week that EPW has acquired exclusive rights to technology that will enable wool to be traced from the scour to the carpet retailer, thereby providing the provenance needed to develop a strong brand, makes the MWNZ sell even more difficult. Why should growers fund PGG Wrightson's wool industry exit strategy when EPW is showing WPI its heels?

MWNZ will therefore be hoping that WPI gets a resounding grower endorsement from a 32 meeting roadshow now underway. If it doesn't, MWNZ will just have to live with the resulting opprobrium. Too much water has gone under the bridge to undo the deal.

Either way, expect MWNZ to progressively distance itself from its love child. Equity and sound governance demand that farmer-good bodies should give equal support to all marketers who meet objective ‘good practice' criteria. EPW clearly does that.

MWNZ directors may also have learned an important lesson - that when political organisations get involved in commerce they put their organisation's mandate, as well as their own, in jeopardy.

Declaration of interest: WHAM formerly acted for the Wool Exporters Council and WoolPro and was also involved in the promotion of GrowerCo, an initiative that was based on many of the principles now being promoted by EPW and WPI.

- Trevor Walton

What do you think?

Dave
This is right on the button! I would have thought that MWNZ would have had enough brains to keep out of commercial ventures given the notable lack of success that the Wool Board had. I hear that MWNZ also has a proposal to reduce the wool levy to 5cpk and of this they now propose that they will spend 2.5 cpk on promotion!! As I understand it, the levy fund from each commodity eg meat wool etc must be spent directly on that product area. I have some questions? 1. Will this money go to WPI to support the Fernmark? 2. Do they have plans to fund other wool promotion eg Romney NZ,EPW Why should a farmer pay a levy to support the promotional activities of a commercial venture! My final question ! Would any farmer invest their own hard earned dollars on another wool venture? Would you buy a share in WPI? I have yet to find a farming colleague who would answer yes! Of course we wont! How many times do we have to learn the lesson that it takes the redhot heat of commercial pressure to build a succesful business not the endless talkshops of MWNZ and its ilk. Good on Elders for having a go and getting some action.There is plenty of margin at the retail and and it would not take much to lift wool prices above the current abysmal level. ( Lucky to get 235 for 2/S at the last sale!)

Expoguy
Yes comments about WPI and MWNZ are so true. However there is a story going round that Wool Grower Holdings have decided recently not to go ahead and try to raise funds from farmers to purchase their share of the PGG business. They have been talking about this fund raising since last October and have realised finally that given the current concerns about PGGW and the Silver Fern deal plus a realisation that farners have no appetite to invest in wool they will never get the funds needed. Does this mean that PGGW will get their wool business back? What a situation for them to be in to now have another layer of salaries to pay, Gattung etc. There is no profit in the wool industry from farmer to selling through to exporting. I know! MWNZ must be wondering why they ever got involved in this debacle. They can't say that they weren't warned.

Rob Roy
As wool exporters, our company is not against WPI, but they haven’t said what they want to do other than the usual bullshit like innovation, consolidation and marketing. If they just came out and said in plain English how they were going to lift the price of wool we could get round the table. I personally think their procrastination in issuing a prospectus and having open discussion fairly much sums where they are at. Also, their farmer meetings have been invitation-only which seems a bit odd.

Mike Petersen
Your opinion piece regarding the role of Meat & Wool NZ and the wool industry requires correcting on a number of fronts. Firstly, the Wool Industry Network (WIN) was not a "marketing ginger group set up by M&WNZ" at all. The role of WIN was to formulate an industy strategy to assist in rejuvenating the sector which is exactly what has happened. There was extensive consultation and discussion with the wider industry to develop the strategy that is now in place contrary to claims made in your article. The evidence of this is clear. Both Wool Partners and Elders have reorganised their businesses to pursue the exact strategy that was developed by WIN. Meat & Wool is embracing this change not running away from it. Secondly, The Wool Partners vehicle was formed to bring industry together to enable them to collaborate more in the market. Three companies make up Wool Partners currently, and the opportunity is there for further collaboration. I have said on numerous occasions that it makes no sense for Wool Partners and Elders to be pursuing the same strategy in the same target markets and then fighting at the farm gate for a decreasing supply of wool. The opportunity is real, and farmers every day are asking me why the two companies do not get together to drive more viable returns back to growers. Thirdly, Wool Partners did not receive a cent of farmer levy money through the WIN process. Wool Partners has been formed by PGG Wrightson placing their wool business in the shell called Wool Partners to allow growers and other industry interests to invest alongside them. Claims that PGGW have "sold" their wool business are not correct, and they have merely swapped the hard assets for shares in Wool Partners. For both the meat and the wool industries we work on behalf of farmers with those companies that share our vision for better returns on an ongoing basis. Your claims of inequity are incorrect and we are more determined than ever to assist in realising the true value of our meat and wool products. However what is happening now with Wool Partners and Elders is commercial and not the role of M&WNZ. We remain satisfied that none of this would have happened if it wasn't for M&WNZ initiating WIN and ensuring it was the catalyst for change we were desperately seeking.

James Aitken
I am all for grower interest and board accountability but a lot of what is written is bullshit. Fact PGGW hasn't sold their wool business they have put it into a new company and asked growers to invest in the new company to grow the business. As for $46 million whoever wrote that is so commercially stupid I doubt they can balance their own cheque book. What have Elders done? They propose to brand all NZ wool with the Woolmark which is Aust owned and more importantly does not brand the wool as NZ wool. How smart is that? Bloody smart if you are Elders as they can source their wool from anywhere. That said if the deal with CAA is what they say it is (they are Aussies after all) then good on them How long will it be before another wool exporter is offering CAA wool at a cheaper price if nothing changes? As for the farmer owned co-operative being part of Elders all I will say is check out how much of the company is owned by the farmer coop and how much of the coop farmers actually own. What WGH and WPI will do is totally change how wool is marketed. James Aitken is chairman of Wool Grower Holdings

Trevor Walton
In reply to Mike and James, yes the $46 million was the original figure publicised as the sale price for the PGGW wool business, not the final figure. My mistake – I have corrected my posting. But it was a sale – PGGW’s wool business is now owned by WPI. According to the NZ Herald (the WPI and PGGW websites are strangely coy about the details) -- the price was $37.5 million. This was reportedly made up of $10 million of ordinary shares, $17.5m in convertible preference shares and $10 million in cash. The other half of WPI is owned by Wool Grower Holdings - an entity which farmers are going to be asked to buy into, with the long-term objective of having a majority of WPI shares in grower hands. For growers to achieve this, they need to progressively buy PGGW out of a chunk of its investment in the company and in its current circumstances it would be very surprising if PGGW didn’t want some cash back sooner rather than later. Looking at this scenario, some farmers are reasoning that they have two alternatives if they want to get a financial stake in a farm-to-retail branded pipeline. To do it via Elders, where they have the option of buying a shareholding in Primary Wools where it will be used to capitalise the EPW joint venture. Or to do it via WGH, where they believe their shareholding will be used to pay out an undefined chunk of PGGW’s involvement.The lack of clarity on these matters is harmful to MWNZ. Yet the WGH/WPI prospectus, which would hopefully shed some light, is nowhere to be seen. Initially promised by chairman John Perriam “by Christmas” it was still “two or three months” away on 30 March when WPI chief executive Iain Abercrombie was interviewed by the NZ Herald. With regard to other comments by Mike and James: Yes, it is easy for the trade to claim not to have been adequately consulted by WIN. But the hyperbole and lack of specifics associated with WPI are doubtless part of the problem – without specifics, consultation with the trade is meaningless. Mike has claimed elsewhere that a change of thinking arising from the WIN and WPI initiatives led to the EPW carpet wool deal with CCA Global Partners in the United States. Mmmm. Really? Direct farm-to-retail initiatives are not a new concept; not even in the carpet wool industry. Besides, Elders says otherwise. As for James’ claim that Elders is Aussie and implicitly dodgy – please spare us that level of debate. The CCA deal hinges on carpet wool, traceability and branding. Since the traceability technology is exclusive to Elders it presumably gives EPW more contract security than other exporters, including WPI, when making deals with international carpet makers. The theme of my posting, that speculation and controversy surrounding WPI is harmful to MWNZ when it is remandating its levy, holds true.

Iain Abercrombie, CEO Wool Partners International
I welcome discussion about our programme to improve returns for the wool industry, but there are some points in the blog that need to be corrected. Trevor claims ‘growing controversy’ about WPI. We recently conducted 40 meetings with growers throughout New Zealand – undoubtedly the largest sampling of grower opinion in recent times. There was no sign of controversy – in fact, it was clear that growers identify with the need to support a strong and workable strategy for the industry. There are several reasons that Wool Partners is the right vehicle to bring the necessary change .… • We have a good start on consolidating the wool clip to provide confidence and grunt in dealing with major customers. Wool Partners handles 65 percent of all wool auctioned in New Zealand and 40 percent of all wool transacted. We are seeking further consolidation. Growers understand that the fragmentation of supply – moving market power to the buyer’s end of every transaction – has to be addressed. • We have a broad base in the New Zealand industry, and deep and effective reach into markets. • We will provide an opportunity for growers to own the benefits from the industry strategy – a grower co-operative will have control of the company. In summary, Wool Partners has the major share of the clip, the capacity to execute the strategy and the commitment to share the benefits with growers. No other organisation can be described this way. One final point… the blog repeats the blooper that PGG Wrightson has sold its wool business to Wool Partners. This is incorrect. PGG Wrightson put its wool business into Wool Partners and accepted shares in return. It is still exposed to the wool industry and thus remains dependent on its survival.

Mountain Man
I think MWNZ has made a real hash of its involvement in the wool industry commercially. Not only has it squandered a great deal of growers’ hard-won funds and its own time but, even worse, abdicated its responsibility of adding value to the clip. WSI should have been the vehicle upon which the future restructure was based, as it was and is owned by a large number of growers, some of whom had a hand in starting its Purelana brand, based on the GrowerCo concept which through apathy failed to get going. The Elders programme is Oz-owned, and as Hugh Stringleman points out, is under a sea of red ink owed by its major shareholder Futures Corporation. WPI, Norgate and Gatting have not even had the decency to present a prospectus to the farming community. There is absolutely nothing new in their proposals, just fat salaries. As for WEL, how shameful. Thank goodness the Wool Advancement Group has moved in. If MWNZ and its associates don’t do better than that, then some of us might not pay our wool levies and we would spend the money on somebody who could really add value to our clips.

Mick Bremner, wool exporter and former All Black
The 2011 Rugby World Cup will provide an excellent opportunity to showcase New Zealand wool. With the NZ Government being extremely generous with taxpayer subsidies, there is no better time to make the NZ Rugby Union show a better appreciation of the qualities of wool. Although Adidas provides a generous sponsorship to the All Blacks, it should be encouraged to come up with something special in wool. There are some magnificent woollen blends today that could be used to display our natural fibre in terms of wearing apparel both on and off the field. At last our NZ wool would be seen on an international stage in our own country. It is a national disgrace that the government and the NZRU has not required this as a condition of sponsorship. Farmers too should be applying the pressure. Not only do they have a vested interest in seeing their wool promoted, farming statistically has probably provided more All Blacks than any other occupation.

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