Wool will have its day again but has two long-term issues to get past as well as the short-term market doldrums, retiring Wool Services International (WSI) marketing manager Malcolm Ching says.
The issues were the acceptance in affluent markets, notably the United States, of the qualities of wool as a natural product as a way of safeguarding the environment, as opposed to using the dominant synthetic textiles, and also removing the widely-held perception among some of those consumers that animals were harmed when the wool was removed from them.
That was a stigma the world industry must get past but high-profile animal rights activists made it difficult.
Part of the problem was that the US was a textile consumer country rather than a wool processor country so many people were unaware of its merits, Ching said.
It could take another generation to fully achieve change.
And the short-term troubles would be around for a while yet.
They would be resolved by China using the tonnes of wool inventory it overbought from 2014 to early 2016 and also, after the Brexit-vote currency collapse, a recovery of sterling to encourage more processed wool into the United Kingdom for manufacturing of finished products.
Those two events at the same time were a double whammy for the industry and prices had tumbled.
In the meantime, the wool market was like being at the coalface of commodity trading.
“It’s dog-eat-dog at very low margins and the risks can be high,” Ching said.
“You need to be putting through high volumes.”
Ching has opted for early retirement though not as successfully as he initially planned. He’s now taking on some project work for WSI, including overseeing its involvement with wool protein extraction business Keraplast and doing some work for others.
It would all have to fit in with motorbike trips round the country, boating, travel and the family lifestyle block near Christchurch.
The basic level of wool preparation in New Zealand was still recognised as the best in the world.
And despite diminished returns for crossbred wool, farmers still took pride in what they produced and were not getting the returns that they should get.
The quality of animal health achieved by farmers as they worked hard to get the best quality lamb meat could also show up in the fleece.
Breeding for meat had also helped wool with cross-breeding with Finns and Texels to produce a composite animal resulting in a tightening of crossbred wool to an average 35 to 38 microns from 38 to 42 previously under all-traditional breeds.
The efficiency of the industry was highlighted by NZ being the most distant producing country from the big markets but being able to compete strongly with anyone.
“NZ wool processed in NZ is held in very, very high regard because its leaves NZ unpolluted due to our farm practices and high-quality processing, even if it is high cost internationally.”
However, 85% to 90% of the crossbred wool was sold overseas for further processing, into tops and yarns. It was a silo pipeline that NZ had no control over and sometimes various wools were mixed together with a much less than perfect outcome.
There was some irony in that because WSI was now effectively owned by Chinese conglomerate Shandong Ruyi, which took over the parent company, Australia’s Lempriere Wool.
WSI was such a small part of the group that it didn’t have any influence there but was small enough that Shandong didn’t interfere here either.
“We get enough rope in NZ to work within the environment we live in,” Ching said.
He believed the industry would be in a stronger space now if a better plan had been put in place when the old Wool Board was wound up in the late 1990s.
“Farmers saw these millions of dollars seen to be wasted on a gravy train but I think McKinsey did a huge dis-service to them when it gave a dump or retain choice, not giving them a third option of something in between.
“It was all or nothing and we chose nothing but if you put nothing in then you get nothing back and that is the story of wool around the world today.”
WSI came out of the Wool Board in the break-up of assets with shares issued to farmers and managers.
Ching joined at the outset, 15 years ago, moving from the overseas-owned Kreglingers business, itself being sold off, and which he’d joined more than a decade before as a result of his wife’s family connections and organised while they were travelling in Europe.
WSI was split off without a trading business or much cash but containing a lot of industry experience, led by managing director Michael Dwyer, who, with most of the small team, came from trader Mair and Co.
Because of its Wool Board background, WSI had been involved with farmer-owned wool entities, some of which did not get past the proposal stage. It had also provided infrastructure services to two that had emerged, Wools NZ and The NZ Merino Co.
The NZ industry sold overseas through direct contracts from exporters to customers, private dealing by merchants and via the auction system.
The sharp fall in prices was highlighted at auction though Ching said the system was a very efficient way of transferring ownership.
NZ also had experience in falling markets of overseas customers walking away from contracts, hoping to buy in at a cheaper price.
Ching had been a regular commentator on the auctions and said both types of trading were needed.
Auction prices would be subdued for a time yet while China worked through its big inventories.
No-one really knew the extent of its stock levels but he expected the process would take some months yet.
The timing was quite favourable, going into winter, with new wool volumes reducing, though a backlog of wool in store remained to be sold.
