Rural delivery: Strong case for a collective approach

By RICHARD JANES*

Just two months after they voted to stop levy-funded market development and promotion, woolgrowers are again favouring some form of collective action. This time, though, participation will be voluntary and in a commercial framework.

The McKinsey Report on raising woolgrowers' profits recommended setting up an entirely new commercial wool marketing business named StrongWools NZ.

An important first step in this process was the recent announcement by the country's main strong-wool grower groups - including Landcorp, the Federation of Maori Authorities and the new Romney New Zealand organisation - that they endorse the concept of one company.

The risk, post-McKinsey, was that these grower groups would fragment and compete against one another (and a multitude of wool-exporting companies) for customers - in this case, the relatively small number of wool carpet manufacturers and yarn spinners that survive in an international market dominated by heavily promoted synthetic fibres.

Development of the StrongWools NZ business plan is being managed by a special task force, comprising a marketing, financial and legal team, which has also been meeting individual farmers throughout the country. The StrongWools NZ business strategy will be presented to all woolgrowers at the Wool Board's annual meeting and conference in Dunedin next week.

So, what is the likely basis of this new commercial strong-wool marketing company?

The McKinsey Report identified that Wools of New Zealand's in-market assets will be key to the success of StrongWools NZ.

The Fernmark brand and associated brand marketing services will be the major factors of differentiation because they will make "branded wool" quite distinct from wool grown by other producers, and set StrongWools NZ apart from businesses which continue to trade New Zealand wool on price alone.

It is critical that StrongWools NZ match the brand marketing services provided by its main competitors, the giant synthetic fibre manufacturers such as DuPont. This is the benchmark StrongWools NZ has to meet.

Should McKinsey's StrongWools NZ concept prove financially viable, it will give New Zealand's strong-wool growers real strength in the marketplace.

Recent wool price increases need to be seen in context. They are a short-term respite largely caused by commodity-driven price cycles, over which woolgrowers are powerless.

Significant structural change, therefore, needs to happen, so that when the New Zealand dollar eventually strengthens and any other problems (such as Chinese wool quota issues) re-emerge, prices do not again fall to the unsustainable levels of the late 1990s.

Woolgrowers' endorsement of the McKinsey Report was a convincing mandate for change in the industry - but that was the easy bit. The creation of StrongWools NZ is, in fact, the most complex task set by the McKinsey Report.

The challenge is to develop a viable strong-wool marketing company that can profitably satisfy growers' needs for sustainable returns and at the same time add value to their customers.

The financial viability of StrongWools NZ will be one of the main deciders, but what has traditionally held wool back is divisive industry politics and the position taken by vested interests.

The biggest test will be to maintain commercial discipline within this intensely political environment.

* Richard Janes is chairman of the StrongWools NZ Task Force, Wools of NZ and Vending Technologies and a director of Kapiti Cheese.