Vote looms on Merino initiative

By JANET TYSON

Merino woolgrowers aim to position themselves well ahead of their international competition with a joint venture that links them to the logistics and supply chain management skills of the country's biggest woolbroker, Wrightson.

On Friday, growers will vote on whether to set up New Zealand Merino Company Ltd, which will earn its income from commissions on industry services and intangibles such as branding.

By voting day, the proposal will have been scrutinised and debated by at least 250 of the 400 merino growers in New Zealand, and wool exporters will also have a say.

The proposal aims to maintain the high brand value, leading-edge marketing success, supplier loyalty and structural innovation for which marketing group Merino New Zealand was praised in the wool industry's McKinsey Report.

Following the report, McKinsey invited Wrightson to work through the possibilities of a joint venture.

The move was approved by the Commerce Commission this month.

The final proposal strives for a flexible and inclusive structure that avoids pitfalls encountered by some other primary sectors.

Growers have endorsed the chosen structure as safeguarding their interests and investment of funds from the Wool Board reserves.

The New Zealand Merino Company will sit alongside Merino New Zealand Inc, which will continue as the grower representative organisation financed by the (soon to be reduced to 2 per cent) compulsory levy payable to the Wool Board.

Merino Inc will be responsible for industry research and development and other activities.

Merino Ltd will be 65 per cent owned by growers and 35 per cent by Wrightson, which will cease its separate fine-wool business.

The start-up funding of $2 million will come from Wool Board reserves ($1.3 million) and Wrightson ($700,000).

Establishment board chairman Peter Townsend described Merino Ltd as the "optimal business solution" for the development and profitability of the fine-wool industry.

"It's not perfect. There is no perfect solution."

New Zealand Merino Company consists of a trust company, Merino Grower Investments, which is 100 per cent owned by grower interests and is governed by an elected board. Growers will have four representatives and Wrightson, which insists it is happy with a minority shareholding, will have two seats on the board.

The trust will hold all grower shares to ensure voting power remains in a block and avoids the Enza situation of a possible minority takeover.

The elected trust will appoint the directors of the commercial operational arm of Merino Ltd, which is expected to employ 17 staff.

Some establishment board and grower representatives have put their names forward for election or appointment to one of the new bodies.

Present Merino NZ chairman John Perriam, who has put himself forward for the Merino Grower Investments trust, will have to leave his Merino Inc position because representatives can sit on only one of the three bodies.

Merino Ltd says it intends to work with existing players and enhance existing structures in the fine-wool industry.

Though it will encourage an increase in long-term contracts for supply, at present accounting for $30 million of business, its principal selling focus will continue to be on auctions.

Merino Ltd will run its own catalogue, aiming to earn commissions by putting together back-to-back contracts and encouraging other relationships - not from any trading activity such as buying and selling wool.

Wrightson, which has the logistics contract for the first two years, will run the auctions using existing facilities and premises.

Richard Wakelin of Wrightson said the contract would not exclude existing players, especially if growers preferred to work with an alternative.

After two years, the logistics contract would go up for competitive tender.

"People will have had a chance to see what's involved by then, and Wrightson wouldn't expect to get any preference in the process. We will have to be the best."

Wrightson has put considerable effort into supply chain management strategies over recent years.

Mr Wakelin said he was confident significant costs could be cut from areas such as transport.

"At present, it's not unknown for wool consignments to travel up country and back again in the course of sale, all at the cost of the producers."

Both parties to the venture acknowledge they are taking some market risk.

Wrightson, which represents 70 per cent of fine-wool producers, cannot compel them to continue supplying through Merino Ltd. The company would depend on a continuation of grower support.

Most, if not all, of the present Merino New Zealand team, along with Wrightson experts, have been shoulder-tapped for positions in the new company.



The results of the grower vote should be known by June 29.

If the vote is favourable, the company could start next month and be officially launched with its first auction and the convention in August.

There should be quick progress on outstanding decisions - including a clear definition of a merino grower, how they will qualify for shares and exit strategies for farmers leaving the business.