Wool industry's future put in growers' hands

While the McKinsey report on improving wool profitability is set to shoot down once-sacred parts of the industry - such as the Wool Board - growers still have to pull the trigger.

Referendum papers on the future of the wool industry are now with growers, who could be attracted by the prospect of a payout from the board's $116 million reserves and knocking the wool levy down from 5 per cent to 1 per cent.

If they accept the McKinsey recommendations, they are on the way towards dissolving the Wool Board and radically restructuring its subsidiaries, such as Wools of New Zealand and Woolpro.

The McKinsey recommendations allow for companies to be established, picking up assets and personnel from Wools of NZ, Woolpro and Merino New Zealand.

There are also recommendations for grower groups to be established. Already several are in the wings, the highest-profile being Romney New Zealand.

Another grower group, Strong Wool South, began its evolution 12 months ago. Chairman Rick Cameron said the group did not lock growers into an organisation, there was no promotional levy and no share purchase fee.

Those supplying wool would be expected to maintain a high standard, and the key feature would be Woolnet - selling of wool on the internet.

Mr Cameron said the value of Woolnet was stressed throughout the McKinsey report, which suggested it had the potential to become a driving force in agricultural commerce.

"We have a system in place along with the best people to take our industry into the future," he said. "If the Wool Board is finished, is there any point attempting to recreate similar operations?

"I've sensed a groundswell which wants all the Wool Board assets liquidated and the cash paid out to growers, who would then decide themselves which operations to support."

But the Wool Exporters Council said Cavalier Corporation's July announcement that it would wind down its scouring operation, E. Lichtenstein, and sell the procurement arm, Elco Direct, made nonsense of the McKinsey recommendations.

Columnist Hugh de Lacy wrote in the council's monthly Wooletter that the report's authors should be embarrassed that, within a week of publishing their prescription for the wool industry's salvation, the company most closely approximating it had quit the farm-gate end of the business because it could not make enough to pay the interest on the capital needed to operate there.

McKinsey proposed a farmer-owned company, tentatively named Strong Wool NZ, to vertically integrate the wool-chain between the farm gate and the carpet retailer.

"Yet just such an entity - albeit privately rather than farmer-owned - has already thoroughly explored the possibilities of such vertical integration and has written it off as a lost cause," said de Lacy.

Lichtenstein had been buying wool in New Zealand for 75 years. Since 1984, when it became part of the Cavalier Corporation, it had been buying through the auction system, and increasingly over the farm gate through its subsidiary Elco Direct.

"Lichtenstein has then been scouring Elco's purchases at its Onehunga plant, and supplying it direct to ... parent company, Cavalier," said de Lacy.

"Cavalier has in turn been spinning Lichtenstein's scoured wool at its own mill, making carpet from it at its own factory and supplying retailers with its own Bremworth and Cavalier brands through its own promotion and marketing company."

De Lacy said Cavalier pulled the plug on Lichtenstein and put Elco on the market because it "has $40 million in capital tied up in its wool trading and scouring arm, but it isn't making enough to pay the interest."

The McKinsey report represented "a grand old spendup of half the board's reserves with the plea to farmers to leave the other half in as 'investments' in commercial ventures that won't even have draft business plans before the farmer is forced into voting a simple yes or no on, essentially, the fate of $116 million plus many other millions of intangible assets."

- STAFF REPORTER, NZPA