Broker admits wool returns oversold

Elders Primary Wool has conceded it oversold the returns expected from its supply contract with United States carpet retailer CCA Global Partners, announced in February.

Some farmers say they were promised up to $5 a kg for their wool only to find six months later it has not been sold, meaning it has had to be sold at auction either by Elders or a competing broker.

Elders National Export manager Craig Wilson said the company had been overoptimistic with what it could achieve given a decline of up to 40% in carpet sales in the past year.

"That made it tough to get over the line."

Declining sales also led to delays in promoting its Just Shorn brand, which was launched in June.

That brand was linked to relationship branding and promotion with CCA Global Partners, and would now happen early next year at CCA's annual retail convention on February 1-2.

Mr Wilson said at that point he hoped to give an indication of pricing.

"When we do come out with a contract, at that stage we will be able to give a sense of the order of magnitude of premium and timing around the delivery of that premium."

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Mr Wilson said the relationship with CCA was genuine.

"CCA Global Partners has a close relationship with us - we have people working for us in the US who are in almost daily contact with CCA."

CCA was committed to the Just Shorn brand, and two weeks ago Elders Primary Wool (EPW) presented that branding programme to CCA's advisory board, which included key retailers within the carpet buying group, he said.

Mr Wilson said when announcing the deal and the Just Shorn brand, EPW had confidence it would result in an increase in retail carpet prices.

However, some EPW staff suggested the deal would see farmers receive $5 a kg for their wool, the result, according to Mr Wilson, of confusion.

He was reluctant to say what premiums could be achieved, but believed EPW's marketing strategy of promoting the Just Shorn brand to retailers was correct, as opposed to that of Wool Partners International, which he said was targeting carpet manufacturers with its Laneve brand.

Mr Wilson said carpet manufacturer Glen Eden had already said it would not pay a premium for wool despite being a Wool Partners International partner.

He also said WPI agreements were memorandums of understanding which did not obligate firms to buy WPI wool.

Manufacturers would only pay more for raw wool if the products they made were earning more at retail level, Mr Wilson said.

A 5% increase in the retail price of carpet would translate to a significant lift in the price of raw wool, he said, and focus groups canvassed prior to the Just Shorn brand launch said they would pay a 20% premium for carpet that was made of sustainable and natural products.

Capturing that extra value was difficult and this had also contributed to the delays finalising the agreement.

While the recession had hit the US floor furnishings market hard, Mr Wilson said the target consumer group earned $US80,000 ($NZ112,000) a year and, with wool making up less than 2% of the US carpet market, there was plenty of room to move.