Wool Board tipped to go in industry shake-up

By PHILIPPA STEVENSON agricultural editor

Woolgrowers today begin a watershed conference likely to bring the demise of the Wool Board and launch a number of new companies.

The $1 billion industry, which has long struggled with falling producer returns, declining sheep numbers, over-servicing, a rollercoaster of product demand and increased competition from other fibres, is at the crossroads.

Today and tomorrow, at the board's annual meeting in the Dunedin Town Hall, sheep farmers from around the country will attempt to achieve what until now has eluded them - unity and resolution.

For about the twentieth time, they have been spurred by a report urging reform - on this occasion, the controversial $3 million McKinsey report.

But again they are beset by rivalling advice and division in their own ranks, exemplified by the 48 remits - many of them at cross-purposes - which they have submitted for debate.

However, for all that, growers are likely to make changes to the industry, creating a company to buy, process and market coarse carpet wools - the bulk of the clip - and one to do the same for fine Merino wool.

Other organisations will probably be set up for research and development, although growers' rush to get a major decrease in the levy they pay on their wool sales may mean that they will not provide sufficient research funds.

But only time will tell how fundamental and far-reaching the reforms are.

One of the more ironic twists is that a farmer-to-market structure similar to one that growers might establish this week has just bitten the dust.

Robert Pratt, the former Cavalier Corporation director and ex-managing director of wool buyer, scourer and exporter Elcowool, has bitterly witnessed the unravelling of the country's most successful vertically integrated wool company.

Last week, carpet giant Cavalier announced the November closure of the state-of-the-art, 75-year-old Onehunga wool scour of Elco's parent company, E. Lichtenstein. It decided in July to wind down its wool trading and scouring to free up $40 million in capital.

Mr Pratt's plan, which was not shared by a majority of the public company's directors, had been to tough it out in a chronically overserviced industry until Elcowool was one of the few - if not the only - company standing.

"We were on top of it, because we were the most profitable company ... If I had had a free hand I would have just continued. There was no reason not to. It wasn't losing money.

"A commodity operation like that, in an industry such as the New Zealand wool industry, will never probably cover the cost of capital."

Blunt-talking Mr Pratt, who has 40 years' experience, believes solving the wool industry's problems is simple. He told the McKinsey consultants so in a straightforward submission of just six paragraphs, and now sees his views reflected in their report's recommendations.

"They borrowed my watch and told the industry the time - for $3 million," he said.

Over-servicing in every sector has reached an almost criminal level, with some roles existing only by tradition, he said.

In an industry handling $700 million of wool, there are 100 exporters (10 handling 75 per cent of the wool), 139 private wool buyers (six account for more than 50 per cent of private sales), 11 woolbrokers (six handle 90 per cent of the wool), 12 scouring plants and 12 trade associations.

"Three or four companies, like my ex-company, could handle the whole wool clip quite simply," Mr Pratt said.

Many opportunities have been missed to establish an integrated company, including the former Wool Board subsidiary Wool Services International, which was set up in 1992 with many of the ideals now being promoted for the new farmer-owned companies.

But while farmers may be "reinventing the wheel" there is a chance of success this time round, Mr Pratt said.

"If the farmers genuinely want it, they could create it quite simply but they would have to be commercially directed, and not go into a great long academic exercise led by Wools of NZ."