Wednesday, December 6, 2023

MPI lays out strong wool woes for MPs

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Market needs to almost double returns per kg, official tells committee.
#Strong wool prices are under so much pressure, there have been reports of it costing farmers more to have sheep sheared that they can get for the fleece.
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A Ministry for Primary Industries official has told a group of MPs that the market needs to get to a point where farmers are getting $5-10 per kilogram for strong wool.

Prices for fine wool, such as Merino, have performed well in recent years, but that has not been the case for the strong wool sector.

Demand for strong or coarse wool, which is made into products such as carpets, has suffered because of strong competition from synthetic fibres, a lack of capacity for development and industry fragmentation. 

In some cases, prices have been so bad there have been reports of shearing costs exceeding the price farmers could sell wool for.

The Ministry for Primary Industries’ (MPI) deputy director-general of agriculture and investment services, Karen Adair, the director of investment programmes, Steve Penno, and the manager of animal sector policy, Edward Tregidga, briefed the Primary Production Select Committee on the New Zealand wool industry.

The trio spoke about the current situation, particularly following Cyclone Gabrielle, the outlook for the sector and the initiatives the ministry’s Sustainable Food and Fibre Futures (SFFF) fund had invested in.

MPI has to date invested roughly $16.6 million in 16 strong wool projects under the SFFF fund. That funding is combined with $21.2m in industry funding. 

Following a question from ACT’s Mark Cameron about efficiencies and value in wool production, Penno said NZ is one of the best producers of strong wool as it can grow “nice white fleeces”.

However, some of the projects invested in by the fund, such as building products, were based on achieving a “much, much higher” price for wool.

So, he said, the market needs to get to a point where farmers are getting between $5 and $10 per kg for wool.

“That is crucial in terms of the value that comes back to farmers for their wool production and bringing wool back to the point where it’s actually a strong contributor to sheep farmers’ income,” he said.

However, he said that would take time because those products and markets have to be developed.

But for that to happen prices would, in some cases, have to more than double. 

According to PGG Wrightson’s North Island wool market update from the May 4 auction, good-style crossbred fleece averaged $3.10/per kg. In April 20, it averaged $2.80/per kg.

Poor-style crossbred fleece at the May 4 auction averaged $2.30/per kg.

At PGG’s South Island auction on May 11, good-style crossbred fleece averaged $3.37/per kg while poor-style fetched $1.94/per kg.

In its market update, South Island auction manager Dave Burridge said the sale saw a “very welcome lift” for most crossbred wool types after a period of very challenging wool sales in recent times.

That was due to disruption caused by cyclone damage to its wool-scouring plant in the North Island, “as well as the sheer volume of unprecedented seasonal colour deterioration”, he said.

Fine wool prices, according to IndexMundi, averaged $18.16/per kg in March.

Asking about the SFFF projects, National’s David Bennett wanted to know from the officials whether they had the right strategy, comparing it to “a bit of a lotto … you’re putting a bit of money into each one hoping one of them is the golden goose”.

Penno said they have “quite an in-depth” investment approach for the projects they support and are “very confident” in the approach they are taking.

Specifically, bypassing the auction system and contracting directly between manufacturers and farmers, which works well in the fine wool industry, is being supported by MPI.

“We are starting to see some changes. There are more and more manufacturers and end-users of strong wool who are starting to contract directly with farmers,” Penno said.

ANZ’s February Agri-Focus report, which described wool prices as lacklustre, said while there are plenty of initiatives under development, most ideas are still some way off large-scale production and are yet to impact farmgate prices.

Labour’s Anna Lorck said the reality is the wool industry has been “struggling” and added that Cyclone Gabrielle has impacted the shearing season.

The MPI’s written briefing to the committee said the strong wool supply chain had been heavily affected by the cyclone.

Factories were flooded and machinery had sustained significant damage, including Woolworks’ wool-scouring plant and Bremworth’s wool yarn spinning plant.

Currently, wool is having to be trucked to Timaru’s scouring plant, which incurs additional freight and logistics costs.

The cyclone has seen exporters stop taking new orders, despite no issues with international shipping.

MPI warned the supply chain disruption could lead to NZ’s strong wool being replaced by wool sourced from other countries.

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