Peter Tate makes the case for the broker and auction based system to sell New Zealand's wool

Peter Tate makes the case for the broker and auction based system to sell New Zealand's wool

By Peter Tate*

New Zealand agriculture efficiently produces large volumes of commodities and while it would be great to have a stake in all the added value from the front end of the commodity chain, the large amounts of capital both intellectual and financial required, makes it difficult to achieve.

There are some companies that seek publicity about sales contracts they have made. That’s fine but often the fanfare is over a very small volume of product. This distorts the view growers have of marketing to the point that they think these companies are the only ones doing anything to market the NZ wool clip.

The real exporters, those with the long track records, continue to stay out of the limelight. This is due to what is called commercial sensitivity, it is an extremely competitive business. More cut throat than meat marketing, hence the old Yorkshire phrase “meaner than a mill boss”. So the firms who are selling and shipping  90% of the NZ clip remain tight lipped about their daily deals.

Another false claim is that the wool trade is dysfunctional.

Again this is only an impression the press creates by stories from dreamers claiming to be the new wool messiah.

The wool trade in NZ runs on the daily intermeshing of many entities resulting in regular sales, deliveries to specification and on time with everybody being paid in full on prompt terms. That’s our job and we find doing it well rewarding enough.

 While there are companies doing great work in this area for small amounts it still leaves large volumes of product to be sold. The greatest percentage of NZs primary production is exported as an ingredient for transformation into a product offshore. The idea of adding value in NZ was abandoned 30 years ago. In the wool industry Brokers, Merchants and Exporters are doing the hard graft in finding a home for 90% of New Zealand’s Wool Clip including inferior hard to sell wool.  

There has been a lot of media coverage lately about wool company’s, corporate and co-operative, creating themselves, using woolgrowers’ seed money. They tend to pay substantial amounts to PR companies creating stories for the media, usually taking only small amounts of truth and padding it out with all the mind-altering marketing jargon available today.These Companies promise everything the farmer wants to hear, but they deliver few, if any, positive results.

Recently a certain company has had numerous articles in the media about approx. 100 tons of wool contracted to a European manufacturer. This really says more about their PR expertise than their wool trading abilities. Selling 100 tons of wool takes approximately 30 minutes at any given wool auction.

Our hard working Exporters do these volume transactions on a daily basis with no fanfare. While not being critical of this contract I feel we need some perspective. There is nothing new or unusual in these contracts purported to be so significant.

Over the last 25 years we have witnessed depressed wool prices largely caused by farmer owned organisation’s using their floor price mechanism to hold wool prices at unreasonable levels at a time of oversupply which blurred market signals and promoted over production. Broker’s, Merchants and Exporters managed to sell the NZ wool clip into very depressed world wool markets.  Over this time all of the wool Industry struggled (growers included), and many went out of business.

When ownership of wool is transferred from the grower to the Exporter, the Exporter incurs all the costs. The Grower has guaranteed payment 11 days from Auction.  The exporters costs include processing, Interest, storage, transport, marketing, scouring and/or dumping, testing and shipping. They also take the risk of holding this wool in a volatile market.

The companies I refer to above are passing these costs back to the farmer.They are offering gross prices but after costs and much delayed prompt the net price is much less than selling through their traditional means.

The good news is that wool prices have increased in the last two years on the back of a significant drop in the world sheep population and good old supply and demand.

The increased demand is also being driven by consumers heightened awareness of environmental concerns, and in my opinion, The Campaign for Wool, initiated by HRH Princeof Wales and his concern for the plight of the world’s Sheep farmers. Over the last 6 years of the campaign Brokers, Merchants, Exporters and growers have contributed thousands of unpaid hours to this campaign and also significant amounts of money.

There has been a real revival in all things wool with stronger wools being sort after for interior furnishings i.e. wall covering, upholstery, curtains, insulation, bedding etc

There is not going to be a sudden increase in wool supply for the foreseeable future. The price will go up and down as all markets do but also being able to sell to any market for as much as the winning buyer can pay is the best position to be in.

The assertion that prices have risen due to taking wool out of the auction is garbage.

It is the freedom of competition in the open auction forum that ensures best values are obtained. Unlike the back door sales to a single bidder for the lots of wool that don’t fit contract specifications.

In fact the burden of accommodating that volume of wool reduced the competitiveness of one exporter at auction last season. Many are the examples of growers who even after funding these entities receive  less than the market price and pay high cents-per-kilo charges.

Peter Tate is a wool broker and principal at Fred Tate Wools Ltd of Gisborne.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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It is a pity about the raw product going overseas. A couple of weeks ago another commenter on this site mentioned our failure to do the value added bit. Is it not time to revisit what opportunities for NZ manufacturers/processors there are to actual own more of the raw product to market chain than we do now?

Its hard to know where to start in critiquing this self serving piece. No doubt the wool merchants do an efficient job at "selling" our wool and the efforts around campaign for wool are of some credit albeit driven from elsewhere. The pitiful return that wool now provides tells you all you need to know about the success of the strategy outlined above. Yes there will always be a place for the auction in the mix to "sell" bulk commodity wools but unless we can more fully promote wools fine properties in relation to synthetics and find in market partners that are willing to pay a sustainable price for the product the volume and quantity of wool will continue to decline. I brought maternal rams this week and paid very little heed of the wool characteristics, its just not relevant in comparison to other maternal and carcase traits. While Wools of NZ and Primary wool are moving very small quantities into branded programmes at least they are heading in the right direction. If we just keep selling wool as undifferentiated bulk commodity form we will continue to get what we've always got. The ticket clippers, as above, will continue to do just nicely thank you.

Firstly I am a broker not a merchant. The majority of both elders and wonz wool is sold thru auction or
passed on to one exporter. I think you will find my ticket clipping is way less than theirs. How about using your real name when commenting

Peter, I am aware CP Wool and Wonz sell the majority of their wool through auction. If you are going to sell undifferentiated bulk commodities then that is probably the most efficient way to do it. My point was at least they are working on strategies to differentiate NZ wool, sell a unique story, seek to extract a premium and provide an opportunity for farmers to benefit from the value chain beyond the farm gate. They are starting small but at least they are starting. If we just keep baling it up and sending it to auction hoping someone will turn up and buy it we will continue to get what we have got for the last 20 years, namely bugger all. I am a CP Wool shareholder and while they may clip the ticket I personally profit from that by way of a share of their profits.

Well said, Sheep Shagger. The country needs added value. We have an added value society. The gap between our commodity outputs and our added value lifestyle inclinations is financed by increasing debt.

Every business that seeks to close this gap via differentiated, value-added product is to be applauded. Piling product up for auction won't move us forward. It's good if you have rare artworks to sell. Not so good if it's just another commodity.

Peter your comment 'more cut throat than meat marketing' sums up just why NZ sheep & beefies are at the bottom of the value chain. 'Marketing' It is not selling wool to a spinner with a certain specification & taking a margin, nor is it offering container loads of fore quarters to the highest bidder. Marketing is about building a brand that has values, forming relationships & selling the experience. Peter, the vast majority of commodity sellers think they are marketing when they are margin traders, & sadly a lot of farmers believe the spin.