Wool industry in crisis

NZ's struggling wool industry is losing tens of millions of dollars as overseas buyers default on payments and exporters say they expect the crisis facing the industry to get worse. Some buyers particularly in India and China are trying to cash in on the rapid fall in the NZ dollar by demanding contracts be renegotiated or defaulting on payment and walking away from orders already delivered, according to the NZ Council of Wool Exporters. The buyers know that the global recession and the falling NZ dollar mean that if they abide by the contracts signed months in advance they are paying up to US$1 more a kilo than they would pay on the spot market reports The Southland Times. The international commodity price for NZ wool had fallen from NZ$4.15 a kilo in September to about $3 the lowest for 14 years, Westpac economist Douglas Steel said. During the same period the New Zealand dollar dropped from US67c to US53c. Wool shipped to contracted buyers in other countries had been left on the wharves, leaving the NZ suppliers to either find another buyer at firesale prices or ship it home again. The defaults have also had a serious knock-on effect: exporters were having difficulty getting insurance for credit, Wool Exporters Council executive manager Nick Nicholson said. That was a major problem because banks would not supply credit to exporters without it. One exporter had asked the Government to consider underwriting insurance policies, he said. A spokesman for Finance Minister Bill English yesterday hinted the Government could step in. New Zealand Wool Services International Ltd marketing manager Malcolm Ching said the number of defaults on payment had increased as the global recession took hold. "The positive side is that we are still trading ... wool prices like all commodity prices have come down. But it's not like business has stopped, we're still trading." Fed Farmers Southland president David Rose said the losses from defaults were being built into the wool prices." Basically it (wool) is worthless. I had a call from from a broker who valued my wool at $2.35 a kilo and I told him I'm not prepared to sell for that." The bill for shearing sheep was often more expensive than the money gained from selling the wool. While the price falls have mainly affected cross breed wool, New Zealand Merino Company logistics manager Mike Hargadon said the price for merino wool had also fallen 12 to 20% during the last quarter of 2008 in response to problems in the global market.