WOOL – ITS CURRENT MARKET AND THE OPTIONS AVAILABLE
You all know that wool has been a worsening disaster in onfarm returns and the same unfortunately applies to the quality of the woollen end products.
Manufacturing is suffering in the same way as farmers as their profitability is also being pushed hard by market conditions with offshore buyers, wholesalers and retail being the only ones who are making proper returns in the areas that count for our farmers.
Demand for New Zealand strong wools has been slipping with an ongoing reduction in demand. This demand has continued to weaken with the occasional blip as the finer wools and alternative fibres have been taking strong wools place in key end markets.
Essentially wool has been marketed as a commodity with a reliance on end users to pay a fair price. The question must be asked, why would they? with an effective reduction in buyers and supply exceeding demand they do not have to.
Manufacturers and traders are interested in their own business and will take the road of least resistance that offers the best returns. If the market asks for specific product type the logical move is to buy the wool microns or alternate fibres that will acheive this in the easiest and most cost effective manner to meet the market needs of the time.
The really worrying thing is that as these trends deepen then the machinery required to convert and manufacture the stronger wool also disappears as it is not updated, further reducing competition for the product and any efforts to innovate and drive demand.
Yes they are interested in keeping their plant full but they will not be replacing it at anything like the level required, so there is an effective reducing productive capacity year on year with plant obsolesces.
With the costs in manufacture closing the gap of the finer microns Merinos and a general market acceptance that the lighter weight Merino or alternative fibres worn in conjunction with a lightweight shell is more than adequate. Technical advances in breathable, windproof lightweight synthetics are real step forward so they can be used in a number of ways to improve wool garments.
Offshore manufacturing costs are so much lower now when compared with local manufacture that the costing variance is less of an issue. These examples will make it clear where the margins are and give you a better idea of where everything is at also an idea of the opportunity that is available
- Fisherman’s rib jersey to make off shore all up including wool is between $10.00 and $14.00 US FOB. (FOB is delivered to the port of loading in the country of manufacture)
- 18 Micron Merino half zip top is between $16.00 and $22.00 US FOB
- Windproof waterproof breathable 3 layer windfleece Jacket hardwearing midweight $15.00 to $20.00 US FOB
- Windfleece Bush-shirt same fabric $14.00 to $18.00 US FOB
To land in New Zealand doubling the US FOB price will give a quick safe costing allowing for currency fluctuations and contingencies with some spare, these costings are loaded reasonably heavily
- Making the fisherman’s rib $20.00 to $28.00 landed NZ cost Current Retail $79.00 to $149.00
- The merino top $32.00 to $44.00 landed NZ cost. Retail $99.00 to $189.00
- Windproof waterproof Breathable 3 layer windfleece cropped Jacket $30.00 to $40.00 landed NZ Cost $149.00
- Windfleece Bush shirt $28.00 to $36.00 Landed New Zealand Retail here $149.00
While there is a price difference between products this is nowhere near as great as it used to be. The windfleece is 100% synthetic 3 layer highly water resistant a great garment and has good market share in the rural market. Merinos strongest market share is in the recreational and tourist markets crossbred lambs and hogget wool virtually gone. These sorts of garments have reset the market to strong wools disadvantage combine this with the level of effort in design and marketing and the alternate fibres have been much more effective. The Merino and recreational retailers sell to an increasingly informed market selling the technical lightweight products to clients that actively look for reasons to buy what will benefit them.
An example a fisherman’s Rib sells really well at $69.90 sales drop by 1/3rd at $79.90 drop by 3/4rs at $89.90 and virtually stop at $99.00 and over. If it comes back to $69.90 good sales return the reason is, it has an area in the market where it is relevant being used for a reasonable jersey for a while then relegated to work but never really a go to town garment as there are so many other items that will fill that role so it is price sensitive. This garment is also not favoured by younger buyers so it has a reducing market year on year and needs upgraded so this type of wool can be utilised profitably.
Our Wind blocker jersey has a highly breathable windproof lining and 100% New Zealand wool outer it is $115.00 plus GST or $132.25 incl GST and is made out of 31-32 micron lambswool processed into a very high quality worsted spun yarn with a water resistant cell phone pocket. It is exceptionally high quality the lambswool is supplied by our members and the garment is sold direct to our members through the Agmatch site.
The prices elsewhere range from $134.50 to $250.00 including GST there was a special late last year at $99.00 including GST there is no comparison in quality. Opposition garments are mostly not NZ wool and the lifespan and the appearance retention just do not compare.
The Agmatch members involved get in excess of $30.00 a kilo for their wool but they invest to get the garment made. As these are sold direct through our Agmatch site there is no retail margin. Everyone involved is an essential part of the manufacturing process receiving fair compensation for their work, so it is sustainable.
We have been able to elevate the quality to the best it can be reduce the price to a level where it will sell freely, pay proper money for the wool on farm and for those that process it. All by using what was the traders share in wholesale and retail. The whole program is reliant on our internal market to kick it off this has taken a lot of work to set up Agwool New Zealand limited is the wool side of Agmatch and the Agwool brand will stand for high quality as we control the whole process from beginning to end and insist on it. The cost of entry into the wool program is a membership in Agmatch where you can save serious money on your farm inputs
Faced with this significant market shift stronger wools that have traditionally sold a reasonably heavy product and faced with lighter weight practical alternatives have failed to adapt. Using lower prices as the way to sell wool unfortunately price has come at the cost of quality and without quality good prices are just not possible. This trend in micron preference is progressing quite rapidly.
Much of the wool sold in New Zealand retail is not New Zealand wool, especially when manufactured offshore. The assumption is made often incorrectly that it is as the origin of the raw material is not stated nor is the question often asked, with only country of manufacture on the label.
Remember to ask the retailer where the wool comes from if they say they do not know ask them to find out and get back to you. It may seem a small thing to do but if enough people ask it does get noted.
This trend is not new it started slow but has been a relentless progression. At the beginning many just thought it was a blip in the market which is always how these things start small.
When in the hands of others these trends are very difficult to arrest sometimes impossible so the whole area needs a rejig with serious thought given to end product meeting the market needs the directness of the supply chain and more direct input into what products are relevant their design, weight, construction and how it is marketed otherwise this trend will continue.
We are all shoppers and we have all seen this change many times in a number of areas leaving some product areas high and dry in a host of areas. Trends change. There is no point in just throwing money at it in the hope of convincing shoppers they need to buy your product without addressing the problems that caused it.
Any product needs to appeal and make economic sense for the shopper to buy, as there are so many other options to choose from.
The retail market looks at best use of floor space based on return by square foot as retail floor space is very expensive with high rentals being the norm especially in high traffic areas.
- Larger chains are buying in significant volume paying very low prices from offshore loading the margin heavily then offering 50 to 60% discounts to stimulate demand and still making excellent margins. Making it very difficult for independent retailers to live in this end of the market unless they are able to work together effectively which is seldom the case.
- Smaller retailers are buying increasingly ex stock from wholesalers in small lots at elevated prices that reflect the cost of stockholding and credit risk for the wholesaler. This allows them keep in better touch with market trends keeping inventories under control and within budget. Usually ends up only really working for the middle to upper end of the market with vastly reduced volumes.
If a retailer sells a low cost item at half the price, they need to sell twice as many to return the same profit. This works on a large scale but not with smaller operators who will use lower prices as an incentive to get people into their shop in the hope they will buy a higher priced item. This means the smaller retailer often takes more care on purchases they are more exclusive, good operators offer a good experience and sell readily to happy clients.
Providing opportunity for those traders selling higher end product
Retail is an intensely competitive and hard trade to be successful in with ever increasing associated costs. Those in this market run their own businesses, times have been challenging profits hard won so there will be no free lunch.
So who would be the ideal retail outlets?
- Initially not the big chains as they are very invested in the higher margins they get from imported product to cover rentals, overhead costs and return a profit they tend to squeeze any margins possible for suppliers like a juicer and destroy any other market a supplier may have. There is no loyalty here orders are hard won and then the work to get in back starts from the beginning for the next season. The market would need to be created first so demand was obvious, allowing meaningful negotiations to gain favourable returns. This is a dubious area to be working in for a supplier.
- Rural Retail should be a good option, they too have moved to a high percentage of offshore products. Mostly because the opportunity to buy local product is seriously reduced and the complexity of getting specific wool converted and made up is beyond their current capabilities. However they are almost certainly a real option for the future as they have shown in the past they will support initiatives if they stack up. There has been a growing trend here to rely heavily on the wholesaler or supplier to de-risk the retailer and take on the responsibility for stock holdings this practice is inflationary. That said it is in their interests to support their clients you the farmer.
- Smaller local retailers generally they are very good people so yes there are options here volumes are small with a huge amount of cost and effort gathering orders if done the wrong way. This could work but would be down the track and only at trade shows and online.
- Recreational Retail Yes this is an area we can target successfully as we move along, We have already had discussions with a couple of good operators, they are interested they can generate volume as a high percentage of their turnover is in recreational tourism mostly younger travellers. The younger travellers are not as easy put off travel as the older age groups if there is an event 2 examples, 911 and the gulf war all resulted in major drops in tourist traffic and hit retail and wholesale hard. Stopping a significant percentage of the older age group tourists travelling. Younger travellers represent a more stable market making this a good area to work in. We have a number of targeted items that would work very well here and after discussions with retailers they agree.
- Tourism outlets short answer is yes tourists want New Zealand product being grown here is enough to gain a foothold. There are definitely things we can produce that will work well. We are pretty connected and know most of the operators we have a plan to follow but this needs a lot of time to set up.
- Export Australia would be a solid option with known outlets we can work with. Plus we have significant opportunity in China
- Direct to the end user online. Yes this is the springboard that will allow us to get this program going initially using our Agmatch site and some other programs we have tagged both local and international that are currently being developed.
- Specific project based direct sales Yes this is definitely a solid option Carpets are currently being developed for a specific direct market with some real volume in it uniforms are another that produces decent volumes.
Tourism shows a heavy bias to merino, Merino blended with possum fur and end products with a soft handle. The graph below shows the New Zealand share of the Merino market as compared to Australia and South Africa etc to give you an idea of market share
Fine Merino wool makes up only a small portion of all wool produced, but it is useful to understand the overall wool category. Each year, the global wool industry produces approximately 1.3 million metric tons of wool. Approximately 25 percent of that comes from Australia, 18 percent from China, 11 percent from New Zealand, 3 percent from Argentina, and 1 percent from South Africa. A handful of other countries produce small amounts of the world’s total. Approximately 60 percent of the wool produced globally is used to make apparel each year.
I have tried to get similar information on Strong wools don’t have anything that I can publish yet but we will get it added ASAP.
You will be interested I have heard numbers like 4% as being the share of the New Zealand market held by wool carpets the reality looks to be single digit at best.
Some numbers (see next page) these are prepared by Robert Pattison in 2005 so not current but useful all the same it will have shrunk, excuse the rough copy it is scanned.
This makes interesting reading give you an idea of volume and where the money goes and who gets it you will see that it goes from 700 million on farm to 5 to 6 so there is a bit of harvesting going on in the middle. The best way to get results on farm is cull that middle area severely and sidestep the current system.
So what is to be done?
There are some good options being built upon in the wider market the most effective looks to be CP Wool, what they are doing with Canterbury Yarns and Just Shorn has to be admired.
I have had a great deal of experience with woollen mills and they have effectively turned around Canterbury Yarns in 12 months with a complete revamp of end market and product a massive job that few could have pulled off. They have managed to get a better return from the retail part of the margin which comes back to farmers who supply the wool that is not easy to do either they must be congratulated.
What are we doing?
Firstly some facts to remember in Agwool New Zealand program
- If we do not have a market we have nothing
- If we have stock holdings we have risk
- If we give credit we have risk
- If we rely on others to manage this for us we have poor returns
We have set up Agwool New Zealand limited, to provide a transparent vehicle to process and market our farmer member’s wool. Agwool is totally transparent to any members who engage in processing their wool through us. It was necessary as Agmatch does not trade and wool needed a brand we could build on that was about real quality that the end buyer could trust also about fair trade. Grinding the manufacturers down to the floor with no margin will not result in a sustainable outcome. Fair trade will for everyone who is involved in the chain that adds something of value and no one else.
Rick Cameron has been a huge help in Agwool and the wool project Rick farms in Lovell’s Flat in South Otago and has worked in the interests of better outcomes for wool for many years. Rick has done this as he wants better outcomes for his farm but also for wool in general in the interests of the betterment of sheep farming in this he has displayed a real generosity of spirit that is rare in today’s world.
We will have to drive change ourselves to get best results, fortunately we are in a position to make some changes that will be beneficial. This will be in a planned program we will not do it all at once one thing at a time bed each product down and move onto the next and see where it takes us
We never want to get into the position of holding any stocks or taking any credit risks this is a firm Agmatch Agwool policy so all of the below if we choose to pursue them would need to go through channels that guarantee payment and only ever make to order. There are retail groups in Australia and New Zealand that offer these guarantees have trade shows twice a year at a central point that I have worked with before and it works.
There are many products we can reinvigorate using knowledge of the market products that have been dropped off and the reasons why we can bring them up to-date use desirable base fabrics develop some new ones and put modern design into them and market in a way the makes for exceptional quality, competitive pricing with good returns for those that are a practical part of the chain only.
Agmatch is fortunate to have 40 plus years of experience in wool manufacture design, sales and marketing across a wide range of wool products. We can get products made out of our member’s wool and the ability to sell product through our web site and to other markets local and international. When combined with the knowledge our members all have in sheep breeding producing the raw product to the specifications required it is a very useful mix.
What is sold through our web site frees up what was the retail margin which we redirect to get better returns for our farmer member’s wool. What is not sold through the site we will get the product made direct from the factories we can use what was the wholesale margin in the same way this makes the sell price competitive, returning much needed quality to the products with much better prices for the raw wool on farm.
The base Agwool Agmatch policy is no wool that is outside of our membership will be included in any fulfilment or any product that we process and market.
Route to market; Who currently controls it and why?
Effectively importers, retailers and wholesalers do as they have direct access to the end market where the farmer does not. More and more large vertical retail chains are importing product themselves direct from offshore manufacturers offering them exceptional margins that allows them to be profitable and afford central city and mall rental rates.
Farmers have no control over these issues and the increased demand for margin with resellers has seriously impacted on farmer returns.
Farmers are reliant on what is mostly referred to as the market and the market will only pay what it has to and no more, the market is looking for profitable sales and if wool does not offer this then they will use other fibres. The reason is that they are running their businesses for the benefit of their shareholders and will buy whatever best suits their own bottom lines and their business model with little interest in what is best for other businesses.
The synthetic producers and marketers have developed some very desirable product in both appearance and ease of use that made traditional wool look pretty backward and dowdy. It must be recognised Merino has done well here where strong wool hasn’t the main shear is not going to work in apparel but hogget and lambswool will. Running Synthetics down won’t work as some of this is very good product we need to recognise this use it where we can to progress wool as they work together very well for the end user.
More of the same obviously isn’t an option just saying wool is best wont either. Although wool has real benefits it needs to fit the new market needs and, provide innovative products that will fit the market and be an asset to those that buy our wool.
Wool has real benefits it is natural, fire resistant, absorbs significant moisture without feeling wet, odour resistant, sustainable, biodegradable, has great regain to name a few.
There are huge advantages in wool across a wide band of products. The wider market has chosen to ignore these benefits as other fibres have been much more proactive in the market.
Wool has to get smarter and look at marketing in a way that will deal with this market situation. In effect we need to create the demand ourselves and not by pouring money into advertising and promotion. Kick start products through our own network and drive demand through products that the market wants to buy, do this successfully and the market will adopt it.
We intend sell first then make, not the other way around, the funding is covered with each fulfilment none of this give us marketing money and we have a go and see what happens this approach has been a money pit. Just presold commercial transactions that are profitable will be entertained.
We now have some proper scale in Agmatch and a solid market made up of our members so we are able to drive this sort of program effectively and get things started the more members we have the more we sell the better the end market the more exposure the more demand
What Agmatch is doing through Agwool New Zealand Limited will start small and will see where it takes us, returning decent returns to our members whose wool is in the programme
Our programme is finally underway the first fulfilment is not large 2600 kilos of 31 to 32 micron lambswool but the returns are pretty impressive with members involved all receiving in excess of $30.00 a kilo for the their wool. We have taken our time over this to get every facet of the program exactly right. These are on the site for sale to members and they represent exceptional value and are at a level of quality that you will be delighted with we certainly are.
Now we can apply this to an increasing number of items we can now process into end product any micron from 14.5 to the mid 40 microns but we will proceed with caution at a speed we can handle
With follow up programmes in train for carpet wool and insulation as the next logical step we have been working with a company that is bringing homes into New Zealand at exceptional prices there will be some significant volume (you will see these on the new site for sale to members what you get for your money is almost unbelievable)
Agwool and the wool program has been able to do this as we have dispensed with the retailer and the wholesaler redistributing their margins into better prices to the farmer for the wool on farm, meeting the optimum end sell price and improving the quality so the product is the very best it can be.
We are not saying we will change the wool industry but we are starting with what we can do now. The retailer is now Agmatch the trader is now our farmer members as Agmatch lives off the annual membership fee with no margin we are able to
All of the people in the Agwool chain contribute in a positive way towards it production and they all receive a fair price for doing so, there are no ticket clippers. This frees up a surprising amount of funds for redistribution.
Off shore manufacture why have product made offshore. It will always be a mix yarn being processed in New Zealand with garments put together offshore sometimes fabric made offshore and made up in New Zealand. It will continue to be monitored simply put off shore manufacturers have the best equipment we no longer do in some cases we do not have any equipment to do the processes we need. There are exceptions in some specialist areas mostly in the finer end.
Weaving in New Zealand is now a cottage industry, knitting manufacturing is mainly selling to tourist stores they are investing in specific fine gauge machinery that allows them to be to service tourism and be profitable. One of the biggest fabric manufacturers in New Zealand is owned by Australian merino.
To sum up, progress is being made it has taken time but we have taken a totally risk averse approach we have 40 years’ experience in the manufacturing wholesale importing and marketing of the yarn woven fabrics, knitted garments end wool product from the woollen mills to importing product into NZ and selling to retail. Put together with significant experience in breeding for the right outcomes wool handling and presentation from Rick Cameron it is a good mix.
For farmer members to be involved there is investment in the processing required but the returns are at a level that makes this a worthwhile.
Products will be available for purchase on the site the first of these being a high quality but very well specified and priced Wind-blocker Jersey.
Any more questions don’t hesitate to give Ken a call on +64 21 337626 or via email firstname.lastname@example.org.