Do-or-die scheme to live off sheep's back

By PHILIPPA STEVENSON

The ailing $1 billion wool industry has been advised to submit to radical surgery - or continue its slow death by a thousand cuts.

Yesterday, industry-hired consultants McKinsey and Co issued the results of a $3 million, eight-month study and advised woolgrowers to adopt all 10 sweeping recommendations, or none at all.

Their advice was to axe the Wool Board, establish two commercial wool marketing companies for carpet and apparel wools, cease funding promotion of wool from grower-funded levies, cut those levies on every kilogram of wool sold off the farm from 5 per cent to 1 per cent, and use that money only for research and training.

McKinsey head Andrew Grant said he hoped the do-or-die plan would lift farmers' return on capital to 8 per cent from around 3 per cent, slow the decline in commodity prices to 2 per cent a year - instead of the current annual plummet of up to 6 per cent - and gain premiums from customers prepared to pay higher prices for a guaranteed supply of quality wool.

The recommendations, which growers will vote on in August, should not be adopted in a piecemeal fashion, Mr Grant said.

There were risks in adopting the study but they were justified "given the current situation for many growers. The greater risk lies in doing nothing."

The Wool Board-funded report was mailed to farmers yesterday, nearly a month late.

Most recommendations have been signalled in recent months, including the harsh advice to growers of mid-micron fleeces to go out of business or "be encouraged to change land use or move to a low-cost niche market focus."

For some time, market trends have favoured fine wool (fibre whose diameter is less than 21 microns), which goes into fashion garments, and at the opposite end of the thickness scale, course wool (32 microns up), used in carpets and rugs.

Last month, growers of mid-micron wool (22-30 microns) were told Wools of New Zealand would drop promotion of their wool this month but the board would use their $1.4 million of levies to develop a business plan for their product.

There are about 10,000 serious woolgrowers in New Zealand, of which about 900 produce mid-micron wool - about 5 per cent of the national clip.

Fine or merino wool producers get about 67 per cent of their income from wool and 27 per cent from sheep meat, while coarse or strong wool growers get about 65 per cent of their income from meat and 35 per cent from wool.

"Mid-micron breeds offer poorer meat returns on average than strong-wool breeds, and the price decline of mid-micron wool has made average sheep returns for mid-micron growers significantly worse than for strong-wool growers," McKinsey said.

Wool Board chairman Bruce Munro was unfazed that he could be the last in a long line of industry heads - some of whom were arguably more powerful than the Prime Minister.

If the new companies proposed by McKinsey proved viable, it would be appropriate, not sad, for the board to go, he said.

"It is certainly a worthy objective to have to commercialise ... these sorts of things. If any of them can't be done, then we get an issue of market failure and I think that is where some collective action is required."

He urged growers to become "fully conversant with the breadth and impact" of the report and said significant farmer support would be needed for law changes to dissolve the board, and set up the new businesses.

Ian Farrant, chairman of the Independent Stakeholder Group, which oversaw the study, said the 10 farmers in the group might have different views on sections of the report but agreed there was only one way forward.

"It is now up to the growers to decide," he said.

10-point plan for survival


McKinsey and Company has made 10 recommendations for the wool industry that the consultants say are do-or-die.

* Levy-funded promotion of coarse or strong wool should cease, and Wools of NZ be turned into a commercial wool marketing business.

* Mid-micron growers should be encouraged to change land use.

* Levy-funded promotion of fine wool should cease, and Merino NZ be turned into a new commercial wool marketing business.

* Present methods for selling wool via auction or privately should remain as options and [Wool Board-owned] Woolnet should be commercialised.

* Growers should fund research and development with a levy of 1 per cent of wool sales.

* $5 million of grower reserves should be invested to establish a sheep genetics improvement company, with $20 million to be invested later.

* Growers should use the internet more to buy farm items.

* Growers need to drive improvements in on-farm productivity, aiming for a 5 per cent annual improvement.

* The activities of the Wool Board should be assumed by the other organisations recommended or be discontinued and the board dissolved.

* Growers should vote on the recommendations as a whole and, if endorsed, set up an implementation project team.