Story of wool's long, slow downfall
A new book looks back at the turbulent decades when wool prices were kept artificially high and what happened when they came tumbling down. Jon Morgan reports.
The crucial turning point in wool's gradual demise can be traced to the late 1980s, when the New Zealand Wool Board allowed itself to be carried away by Australian hype.
That's the view of Roger Buchanan, the board's last chief executive, who has published an autobiography that attempts to unravel the tangled skein that is the story of New Zealand wool.
In Last Shepherd Buchanan charts his life, from growing up on a Manawatu sheep farm, to a Massey wool diploma, university tutor, Wool Commission appraiser and on into senior positions with the Wool Board.
He was chief executive when the board was wound up and its assets dispersed in 2003. Then he stayed on to deal with a longstanding court row over the distribution of reserves that was finally resolved last year.
Buchanan, who joined the commission in 1964 at the age of 21, spells out the key stages of wool's long, slow downfall.
The advent of tufted carpets in the late 60s was one, he says. “That really put wool on the back foot because it couldn't be processed as easily or efficiently as the new nylons.”
Then came the 1970s oil crisis, when wool prices escalated. At the same time, subsidies encouraged farmers to run as many sheep as possible and the national flock climbed to a peak of 70 million producing 740m tonnes of scoured wool.
By the 1980s the Wool Board's reserves were at a peak of $465m, helped by high interest rates.
The reserves were the board's Achilles heel, Buchanan says. “The temptation was to use those resources rather more aggressively than its role, I think, was suited to.”
The board became an active wool trader, intervening even in rising markets and inhibiting corrections. It got to the stage where the interventions were “significantly above what demonstrably were realistically sustainable prices” compared with rival nylon fibres.
It was urged on by Australia, which was an even worse offender. “It all got out of hand, it was too expensive. It was crazy stuff,” Buchanan says.
Farmers rather liked it that the board was holding the middle men to account, he says. But they didn't appreciate that their levy was being used to support promotion while the market intervention was being funded from reserves.
When the market collapsed with the withdrawal of intervention in 1991, New Zealand and Australia found they had lost customers. For New Zealand, these were carpet manufacturers who could not match the artificially inflated wool prices and who had gone to suppliers of synthetic yarns. “We burnt them off, alienated them, and they never came back,” Buchanan says.
“From then, the past 20 years, it has been a struggle. There's been the odd surge, for reasons of supply shortage, or the Chinese buying at extreme levels, but it has been a battle.”
The board also alienated the farmers. “They discovered their levy was being spent on promotion, something a million miles from the farm gate that they didn't understand and didn't appreciate the need for.”
This was exacerbated by the McKinsey report in 2001. The consultants, whose recommendations to break up the board were accepted by levy-payers, said they could not measure the return on the investment in promotion.
The board knew that, Buchanan says. “We also knew wool was being processed by some manufacturers that wouldn't have otherwise used it, that it was positioned in some markets where it wouldn't otherwise have been and that there were consumers aware of wool who would not otherwise have been because of what we were doing in the market. We knew there was a benefit in that, we just couldn't measure it.
“There was a lot of angst and anger built up among farmers about the value of promotion and the McKinsey report's statement fuelled that.”
The result was that the board's successor bodies, SheepCo and Meat and Wool New Zealand, refused to fund promotion.
“One measure, I suppose you could say, of the value of that is what has happened in the market over the past 10 years.”
Asked if he can now see, in retrospect, actions that might have changed history, he goes back to the early 70s and what became known as the Great Wool Debate over whether to acquire the entire wool clip and take over its marketing.
“Farmers had an opportunity then to chart a more radical course, which they chose not to.
"Whether that was a bad decision or not I have not settled clearly in my mind, but it was the last real chance they had to work in a major collaborative way and form some sort of Fonterra-type co-operative.”
Recent attempts to form a co-operative have failed and another similar body will be launched shortly. “I hope it will happen eventually and it's good to see someone's still trying. If they don't, the future won't be too rosy.”
He thinks there is scope for two or three enterprises to specialise in different parts of the world, but warns that the United States is not the answer to all prayers.
To buy a copy of Last Shepherd for $42.50 contact email@example.com.
The Dominion Post