ANZ economists say the New Zealand wool industry is in need
of rationalisation and consolidation.
Dramatic structural change is first required beyond the
farm-gate in the wool industry if the economics of sheep
farming are to improve, ANZ economists say.
For that to occur, farmers needed to ''invest and pin their
colours to one mast'', the latest ANZ Agri Focus report said.
New Zealand's sheep flock was declining, the return on equity
on sheep farming was poor, there was excess capacity across
the processing sector, meat processors collectively suffered
record losses last year, and the country's major markets in
Europe were depressed.
''Put simply, the economics for sheep farming do not stack
up,'' the report said.
While the bank liked the ''spirit'' of the red meat sector
strategy report released in 2011, it questioned whether it
went far enough and progress on some of the initiatives,
nearly two years on, seemed slow.
''To be fair, it's been a struggle for some time. We simply
seem to be closer to an inflection point where a tipping
point drives necessary changes. Muddling through is not a
strategy. More scale is required to help fill in the missing
middle in New Zealand's food and beverage companies.''
The wool industry was in a worse state than the red meat
sector and in need of rationalisation and consolidation, the
While some plans had been suggested to promote
rationalisation, new thinking and investment in product
development and marketing, by and large none was fully
functional, the report said.
The latest Federated Farmers confidence survey cited
commodity and farm-gate prices as farmers' primary concerns
and that reflected what Wools of New Zealand (Wonz) had been
hearing from strong-wool growers throughout a capital-raising
process, Wonz chairman Mark Shadbolt said.
It reinforced the need for strong-wool growers to invest in
the sale and marketing of their product.
The Wonz capital raising offer, which closes on February 25,
was a ''straightforward commercial proposition'' with the
objective of raising capital to allow it to strengthen the
company's brands and market connections to ''pull'' wool
through the supply chain, benefiting shareholder growers, he
So far, 560 growers had taken up the offer of shares in the
company, which represented a combined annual production of 12
million kg of wool.
The company's focus remained on achieving a target of $10
million raised and 20 million kg, Mr Shadbolt said.
Wool prices fell late last month after a strong start to the
new year, driven mainly by demand from Chinese customers
seeking quick delivery, the ANZ report said.
For the year-to-date, total wool exports were up 17%. China
continued to take the lion's share at 47%. The share of
exports going to Europe held its own, the report said.
Exports to the UK and Germany improved but Italian exports
had dropped by 10%. China's share of fine wool exports
increased to 70%.
The report said lamb schedules looked like they had bottomed
out around $4.70kg but were not expected to improve
substantially until the normal seasonal uplift in May-June.
The 2013 outlook for beef prices continued to look solid.