End of the golden fleece

By PHILIPPA STEVENSON

The choice facing hundreds of sheep farmers is stark - they must get out of their ailing wool-growing business and dispose of their flocks, or face death by a thousand slow cuts.

The advice is contained in a hard-hitting rescue plan for New Zealand's $1.5 billion wool industry.

To understand the problem, the rest of us need only look at our insulated houses warmed by central heating or the latest-generation wood burner.

Polished wood floors increasingly gleam up at us in our homes, restaurants and other public buildings, their expanse brightened by cotton rugs.

If we venture out into a chill winter day, we may don our colourful but lightweight polypropylene jacket. It is likely that only our grandmothers continue a tradition of hand knitting.

Gone are the days when almost universally we covered our floors and ourselves with wool.

We like cotton but we have wholeheartedly embraced synthetic fibres, and the huge global industry that produces them is constantly dreaming up new, softer and finer variations that keep us coming back for more.

Not only does wool make up just 3 per cent of worldwide fibre supply, but synthetic manufacture has undergone huge technological innovation which means it can be produced at lower and lower prices which set the level for all fibre sales, including natural wool.

Added to that, says Rob Davison, director of the Meat and Wool Economic Service, huge geopolitical shifts in recent years have seen whole markets for wool disappear overnight.

As it had done for the previous 10 years, in 1989-90 New Zealand exported 26,000 tonnes of wool to the USSR and Eastern European communist states. The next year, after a monetary crisis in the region, exports plummeted to 7000 tonnes.

China was a major buyer of our wool for 20 years, but its demand, due to internal political shifts, dropped from a high of 75,000 tonnes a year from 1993-95 to just 27,000 tonnes in 1998-99.

Each New Zealand sheep produces more wool on its back than any other in the world, but that has not saved it from the same fate as its cousins across the globe. In most countries, sheep numbers are mostly static or, as in New Zealand, dropping.

So, it is not surprising that after eight months of study, consultants McKinsey and Co this week told one group of wool growers - mid-micron producers whose wool is often used in hand knitting - that they should change land use. Mid-micron wool has fibre thickness between 22 and 30 microns.

Equally directly, the company paid $3 million by the Wool Board to give farmers some answers to their problem of falling incomes, told other struggling growers to shape up or ship out - in its words, make annual productivity gains of 5 per cent or "consider other options."

Far from being shocked by the severity of the advice, Federated Farmers meat and fibre producers chairman Chris Lester described the study as "a much-needed catalyst for change."

The small, South Island-based mid-micron sector of the industry was already well aware of the difficulties it faced and the recommendations - signalled earlier in the month - had been well received, he said.

"The proposed change of land use is an individual decision. All McKinsey have done is identify that opportunities for mid-micron wool are limited and farmers would be well advised to consider some other land use option, say venison, meat production, or forestry."

And the 900 mid-micron growers are already an active marketing group who believe they have a discovered niche opportunities for their class of wool.

Their chairman, Martin Paterson, said the wool had recently had a price rise and the gung-ho group was appointing a project manager.

He doubted whether many farmers would stop producing mid-micron wools.

Mr Lester said that far from being offended by the shape-up message, the straight talk of the report was "elementary stuff" to many farmers.

It had identified what the best producers were achieving and had created a blueprint for what the under-performers had to do to in order to improve their performance.

"Many farmers have turned their priority to meat production in the past four or five years, and consequently have treated wool with a lack of interest. That has impacted on productivity level, the quality of the wool and wool preparation."

Dr Garth Carnaby, managing director of the Wool Research Organisation of New Zealand (Wronz) and world president of the Textile Institute, is well versed in the global use of all kinds of fibres.

Despite the growing competition from synthetics and cotton, there is a huge market for wool, and the industry worldwide is massive, he says.

"The problem with the wool industry is the return to growers. The industry is not in the doldrums, the farmers are. The industry is using every kilo of wool produced and making a lot of very fine products out of it."

He said he had long argued that under-investing in innovation both on and off-farm was the reason New Zealand had failed to capture more of the market. He was disappointed that the report, while quite imaginative about on-farm innovation, neglected the possibilities for off-farm research and development.

The report recommends a total grower investment in Wronz of $2 million, down from $6 million two years ago.

He said Wronz had a worldwide reputation and had already transformed itself into a financially successful technology developer, but without growers' funds it would not be developing intellectual property for the use of the New Zealand industry.

Dr Carnaby doubts that the report got it right about mid-micron fibres.

"It is very dangerous territory to say the textile industry does not know how to use fibre of any sort. All the mid-micron wool that is being produced is being utilised.

"There are some very nice products developed from it from upholstery to knitting yarns and bedding."

While the report's key point was that mid-micron production was not the most profitable land use for some farmers, it was very likely the fibre would soon enjoy a price increase because processors would substitute it for the expensive merino wool.

"Two or three years ago [farm adviser] WoolPro was telling the industry to get rid of the coarse wool sheep," he said.

Coarse or strong wool sheep are recommended, along with the fine wool of merino sheep, to be the areas farmers now focus on.

Southland sheep farmer Robin Campbell, the chairman of the Sheep Research Foundation, also highlighted the shifting fortunes in wool demand.

"The same night the McKinsey report hit the headlines, there were reports of a resurgence in the popularity of hand knitting [which takes mid-micron wool]. We really need to maintain flexibility, not burn bridges behind us."

Mr Campbell was concerned about a recommendation that research be funded with just a 1 per cent levy on wool sales, combined with a contribution from the Meat Board levied on sheep meat sales. That would net about $18 million.

The reduced funding would put potential biotechnology gains at risk, he said.

"The percentage [levy] should be decided after the strategy has been developed, not beforehand."