Farmers signing supply contracts that take their best wools outside the auction system may be shooting themselves in the foot, says the new president of the Wool Exporters' Council, Charles Hall.
If too much top-quality wool was shifted out of the regular auctions, their prices would fall, he said.
That in turn
would bring down the prices of private contracts.
"The price they get when selling at the gate is a direct reflection of current auction prices."
The latest industry restructuring review, the McKinsey Report, had taken a stance against wool promotion and wool auctions.
Mr Hall said some other marketing schemes were designed to lock growers into supplying the best of their clip outside the auction, on long-term contracts.
"All sorts of people are running around promising to make growers profitable from schemes they have dreamed up."
"Invariably these schemes are based on direct supply from the farmer," he said.
"Auction prices will be based on the less attractive styles, and this will become the benchmark for prices on deals outside the auction for the premium wools.
"It could be a downward spiral that will cost growers dearly."
Farmers should look at market growers in the vegetable industry, which had been hit by the collapse of its auction system - triggered by the move to direct-supply big customers.
These customers took the premium produce at prices based on the lower quality available at auction, where prices tumbled because of the absence of the big buyers.
Mr Hall said wool prices were making a "sustainable upward movement."
"Very little of these price movements would have occurred or filtered through to the grower if buyers hadn't been competing at the auction for supplies."
Mr Hall said exporters were not against direct supply or any other method farmers used for selling their wool.
But exporters relied heavily on the auction as the main source of supply and as the central price-finding mechanism.
"The auction is the most efficient system for transferring ownership of wool. It is the only method farmers have available to them to measure demand and to establish the true value of their wool."
- NZPA
