After decades of declining prices, farmers are enjoying rising returns.
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A rising tide lifts all boats – even a boat as fractured and battered as the New Zealand wool industry. Prices for agricultural commodities have rebounded strongly since the global financial crisis, and wool – a product sheep farmers had all but given up hope on two years ago – has been one of the beneficiaries.
The price of strong wool, which makes up the bulk of the New Zealand clip and is used for carpets and upholstery, has bounced from about $2.90 a kilogram 18 months ago to over $5 at auction last week, according to one exporter. Global prices for wool hit a 21-year high late last year, pushed up by demand from manufacturers adding to depleted stocks after the recession, rising prices for competing fibres such as cotton, and a shortage caused by a drop in sheep numbers around the world.
The big question for New Zealand’s long-suffering sheep farmers is whether the resurgence in prices represents a genuine reversal in fortunes for wool, or whether it’s merely a temporary blip. For Hawke’s Bay farmer Bruce Wills, who also chairs Federated Farmers’ Meat & Fibre section, there was a hint of excitement at the prospect of shipping 55 bales of wool from his property last week. But two years ago, when prices hit rock-bottom, there was “absolute despair” in the industry. “It was entirely bleak. There was nothing we could see to give us confidence.”
After decades of declining prices, farmers had come to see wool as little more than a byproduct of meat production. Wills’s response to the dismal returns from wool was typical of many: his ewe numbers dropped from 6500 six years ago to 2500, he concentrated on lamb production, and shifted away from the traditional Romney to breeds like Texels that gave better meat returns.
Farmers expressed their despondency by voting down the wool levy (traditionally used to fund industry-good activities) – a move Wills argues was a rational response to uneconomic returns.
Agriculture Minister David Carter says wool – a $2 billion industry about 15 years ago – had shrunk to just over $500 million two years ago. Farmers had reached the point where they didn’t care about the quality of their wool and had started looking for breeds that didn’t require annual shearing, which would ultimately have spelt the demise of the entire industry.
But now farmers like Wills are daring to express confidence in the industry again. As is the Government, which last week committed $8.6 million in research and development funding for wool, which will be matched by industry funding.
Last year’s launch of an innovative New Zealand wool and recycled jute fabric blend – developed by Wellington design company The Formary (Business, January 1) for Starbucks – has also lifted spirits, as has the Prince Charles-backed Campaign for Wool, which is plugging the attributes of wool as a renewable, environmentally friendly fibre.
One exporter claims the stars are aligning for “the great wool revival”. Wills, too, believes “the time is right for wool”, given consumers’ increasing environmental awareness and concern about relying on oil-based products such as synthetic textiles.
Well, that’s if the industry doesn’t tear itself apart in the meantime. The wool sector has a long history of infighting and conflict, and is currently embroiled in hostilities over Wool Partners Co-operative’s proposal to raise $65 million from farmers over five years and control the marketing of half of New Zealand’s strong-wool clip. Backers claim this is an essential move that will get rid of weak selling by the plethora of wool exporters, unify the industry and allow farmers to control the supply chain from farm to market. Exporters – condemned by the co-operative as mere “middlemen” and ticket-clippers – hate the idea, claim it’s a rort and allege it could put the whole industry at risk. Each side accuses the other of low motives and dirty tactics, and lots of abuse has been hurled.
The truth probably lies somewhere in-between the two extremes, and almost everyone agrees the industry needs some kind of reform. But most of all, wool growers probably just need reassurance that the price recovery is here to stay. Wills says he’s watching with anticipation, although he hasn’t yet started searching for breeding rams for their wool qualities.
“We used to all do that, but in recent years most of us have discarded any wool criteria in ram selection. But I hope that if this recovery can be sustained, we’ll again be going to our ram breeders and saying, ‘Hey, show us your rams with high wool characteristics.’”