Closure of Cavalier plant could cost 30 jobs

BY PHILIPPA STEVENSON agricultural editor

Carpet-maker Cavalier Corporation's closure of its 75-year-old Onehunga wool scour from next month could cost around 30 jobs.

The closure was signalled in July when Cavalier said it would exit unprofitable wool trading by winding down its E. Lichtenstein wool scourer and selling the company's procurement arm, Elco Direct.

But yesterday Cavalier managing director Alan James said that while the company had formed a joint venture with Hawkes Bay Woolscourers to meet its scouring needs, it no longer intended selling Elco.

It had hoped to free up $40 million in capital from both moves.

Elco would continue to procure wool for Cavalier and industry clients as a direct subsidiary of the corporation.

The significant national player would reduce its operation, probably handling about 90,000 bales of wool a year, instead of its present 130,000, Mr James said.

The Onehunga factory's scouring plant and equipment, understood to be some of the most modern in the country, has been sold and will be shipped to Australia.

In July, Cavalier said it expected minimal redundancies at Onehunga, but last night a source close to the operation said it was likely all the factory's workers - about 30 - would lose their jobs, and possibly up to five other staff, too.

The source expected there had been little buyer interest in Elco in a wool industry struggling to survive.

Carpets have earned Cavalier more than 90 per cent of its tax-paid earnings in recent times and the company said wool trading had consistently failed to produce an adequate return on the large amount of money used in the business.

Mr James said wool traders had to bridge the gap between the end user who insisted on buying ahead on fixed-price contracts and the grower who insisted on the best price at the time of sale.

"The only way to bridge that is to take ownership of the wool and sit on it, and hedge the currency risk.

"It is simply too expensive in terms of the margins available."

Some see Cavalier's departure from a vertically integrated structure as prophetic when farmers are considering fundamental changes to their industry which mimic the Cavalier model.

New-style integrated business models for fine and coarse wool companies recommended in a report by consultants McKinsey & Co are to be considered at next week's Wool Board annual meeting.

Mr James said he thought the report provided "a reasonably independent, authoritative, well-reasoned analysis of the problems that beset the wool industry and the wool trade."

However, the solutions it proposed were simplistic and largely unworkable.

"I could see every sign in the conclusions of the report of a great deal of pressure to produce an alternative to the status quo, and there is absolutely no evidence that the status quo is not the best model," he said.

It was wrong to conclude that the industry was failing because wool prices were not what woolgrowers would like them to be.

The only realistic measure of prices was against competing fibres.

"If you look at the price trends of New Zealand wool against those of other competing fibres there is a very strong argument that the Wool Board's existing [promotional] strategy has been successful."

Mr James said farmers needed to maintain their promotion of wool because "nobody else in the supply chain has that undying commitment to New Zealand wool."