Office of Hon Jim Sutton
Speech Notes 29 October 2001
Wool Board AGM, Napier
Chairman Bruce Munro, ladies and gentlemen: As a long-time wool producer, as well as the holder of two significant
economic portfolios, I appreciate the opportunity to attend part of your conference and to convey to you some of my own
views.
This is crunch time. Your industry stands at the crossroads. One side, oblivion. The other, chaos.
Which way will you go?
>From reading newspaper reports of your industry, you would think that the wool industry is in total crisis, that
earnings are virtually nothing, that wool is no longer an important product for New Zealand.
But wool is an important product for New Zealand.
New Zealand is the second largest producer of wool on a "clean" basis in the world, and produces 14 per cent of world
production.
Wool fibre export earnings for the year ending June last year were $801 million. Wool textile exports were another $241
million during that time, with sheepskings and sheepskin products contributing a further $52 million.
So in total, wool and wool products earned almost $1.1 billion dollars ? 4.2 per cent of the total value of New Zealand
merchandise exports.
That's not an insignificant amount.
The New Zealand economy has traditionally lived off the sheep's back, from both wool and meat. Apart of a surge from
dairy, not too much has changed.
Perhaps that's part of the problem.
The wool industry has been suffering from declining returns for many years now, and not surprisingly growers are
demanding change.
It is of course easy to blame problems in the wool industry on marketing structures and on the Wool Board itself. I do
not, however, believe that the Wool Board and its promotion and marketing structures are principally to blame for
declining industry prosperity.
Wool has lost market share, and has declined in profitability mainly because the industry has failed to keep pace with
technological change and new product development in the synthetic fibre industries.
Huge research and development investment internationally has driven product innovation and improvement in synthetic
fibres. This innovation has reduced the price of synthetics, and, above all, improved their performance characteristics.
This, in turn, has meant that textile manufacturers have directed their investment into new machinery suited to
synthetics and not wool.
You can see that change here, in New Zealand. What do people wearing casual or sporting clothing put on when they get
cold? It's probably a cotton sweatshirt or a polar fleece pullover made from recycled plastic. If you're lucky, it's an
Icebreaker jersey made from finely-knitted merino wool.
It's rarely that basic woolen sweater that everyone used to wear all those years ago.
Wool is now a fashion item, one among many, not the automatic choice.
I think there are some lessons in a comparison between the wool industry and the sheep meat industry of the early 1980s.
At that time, the meat industry was grappling with low prices, weak demand, and declining competiveness compared to
white meats and other alternative products. Sheep meat was seen in some markets as tough, smelly, and poorly presented.
It was often cut to unappealling specifications and was of uneven and sometimes unsatisfactory quality.
Some farmers in the 1980s felt there was no future in meat and it might be better to move into all wool farming?
Now, in 2001, the sheep meat industry is profitable.
Part of this is due to marketing entrepreneurship and changed industry structures. However, I believe the major factor
in sheep meat profitability has been the improved eating quality of our lamb exports, together with enhanced packaging,
presentation, and cuts that appeal to changing consumer needs. This has been achieved through niche market development,
greater responsiveness to customer demand, technological advances in meat tenderness, consistent quality, and chilling
and packaging innovation.
Ladies and Gentlemen: if you take away nothing else from my speech today, remember this part.
As minister of agriculture in this Labour-Alliance government, it doesn't matter too much what I think of your
industry's structures. You keep working on whatever you think is the best model for your industry.
Labour policy is quite clear on producer board reform. If you bring me changes you want to implement that are supported
by a majority of industry players, are fair to minority interests, and are in the national interest, then I'm here to
facilitate that change through the necessary legislative process.
We are not driven by ideology to force-feed farmers with the demolition of co-operative structures and discourage
collective provision of industry good services.
So far in the term of this government, you've seen that facilitation for the dairy industry, the kiwifruit industry, and
the pipfruit industry. I'm pretty relaxed about the general thrust of the reforms to industry structures that have been
endorsed by farmer referendum, including the dissolution of the Wool Board. And I'm reasonably content with the
management of the reform process so far ? a far more difficult task than some critics appear to appreciate.
But what I am concerned about is your industry's views on promotion, and on research and development.
If you make decisions to do away with any spending on either of those two areas, then make sure you are all fully aware
of what you're doing. If you don't fund it, in my view it would be unsafe to expect that anyone else will.
Yes, it's hard to measure the benefits of promotion ? you can't scientifically prove that spending x million amount of
promotion nets you y million amount of revenue.
But seriously ? how many successful industries and companies around the world with something to sell do you know of that
don't advertise and otherwise promote that product??
Also, I'm not impressed by the urge apparently felt by some to demolish as much as possible of the public good research
and development of the Wool Board.
I disagree with the theory that farmers should only spend on on-farm production research and development work, and that
research and development aimed at increasing demand beyond the farm gate be abandoned. If farmers expect others to pick
up that, then I fear for your industry. More and more of your place in the market will be taken over by synthetics, who
understand the value of not only research but have the commitment to promote to the end consumer.
The competiveness of the wool industry will not be enhanced by focussing on only on-farm productivity and minimising the
levy burden on farmers. Pastoral agriculture in many parts of South America provides examples of farmers focussing on
their farming operations and not being prepared to support initiatives further down the value chain. But anyone who has
visited South America knows that they envy our relative success, which they attribute in large measure to our
collectivist institutional structures.
WRONZ has a tremendous track record in wool industry innovation. It has been critical to keeping wool in the game, in
the face of the dramatic advances of its synthetic competition. It is important in my view for the industry to
capitalise on its intellectual property and to sustain its investment in wool products, process innovation, and carpet
technology.
Without ongoing innovation in the carpet industry, it will be difficult for wool to continue to compete with synthetic
carpets, and this could endanger a market for around 75,000 tonnes a year of New Zealand strong wool production.
Some people may say that the wool industry cannot match the amount of research effort from the synthetics industry, and
should stop trying to compete. However, an important feature of research and development innovation is that it is not
always scale dependent. Often the major advances come from small players who think outside the square, who are fast
moving, or who are better able to spot and exploit a new market niche.
It is also important to recognise that farmers' levy payments are not the only funding source of wool industry research
and development.
Private sector research and development in this sector do not stand alone, and decisions you make can have implications
for the funding contributions Government makes.
Public funding of wool and other agricultural research is conditional on the industry being prepared to at least
maintain, and preferably enhance, its investment. If an industry reduces its research and development investment, then
you can expect the Government may do so as well. If industry does not have the confidence to put money into research and
development, then that gives an obvious signal to others, including the government.
Ladies and Gentlemen: no-one can claim it will be easy to turn the wool industry around and restore its profitability.
However, the certainty is that if the industry focuses only on incremental cost reduction on-farm and minimising levy
payments, then its future could well be bleak. It would not be unreasonable to anticipate wool slipping to the status of
a fashion-dependent alternative outside the mainstream of certain market segments. Not unlike angora fibre, or even
ostrich feathers: occassionally valuable, but also frequently surplus to requirements.
Entrepreneurship, niche market development, and an expanded effort in research and development innovation could pay
considerable dividends for your industry.
Merino growers have benefited from links with leading edge Italian fashion designers, who demand extremely high quality
fibre for top of the range applications. Blends of possum fur and merino wool, while a small niche market, have shown
that even pest problems can be turned into market opportunities. The mid-micron market was dismissed in the McKinsey
report, but subsequent analysis has shown some potential in markets that value environmentally sustainable fibre
production.
Reducing the cost of wool production will not by itself restore industry fortunes.
What is needed is innovation to improve the characteristics of wool, to enhance its appeal to consumers, to produce new
wool-based products, and to produce technologies that allow wool to compete in new and in higher value markets, perhaps
even in non-textile markets.
As growers, the decisions you take today and over the next couple of months, will have significant implications for your
future business ? and our country. I urge you to give them careful consideration.
Thank you.
ENDS