Capturing added value

01-02-2011 | Robert Pattison

Exciting times lie ahead for New Zealand fine-wool farmers if the millions the Merino industry and the Government are poised to spend substantially lift farm-gate returns.

Following the "no" vote for wool levies in 2009, Merino farmers expressed an interest in continuing to invest in sustainability, research and development and market development.

New Zealand Merino Company (NZM) chief executive John Brackenridge recognised the opportunity. He employed the skills to prepare a comprehensive Merino industry strategy and business plan, a plan that convinced MAF's investment advisory panel for the Government's Primary Growth Partnership (PGP) to invest $15 million of taxpayers' money. NZM's strategy for the fine-wool sector is predicted to bring in a whopping $868 million to NZ's economy.

Brakenridge is a member of the advisory panel but was not part of the group considering the NZM application. He declined to give Country-Wide a copy of the application and business plan, citing commercial sensitivity.

NZM plans to inject $36 million into the fine-wool sheep industry in the next five years. NZM partners will invest $21 million alongside the Government's $15 million. Fine-wool farmers will contribute by paying 5.25c/kg on the greasy weight of wool sold through NZM.

The farmer contribution won't be easy to gather given that last season Merino and other fine-wool production totalled about 10,000 tonne. Even if it is 12,000t, at 5.25c/kg the levy would bring in only $630,000 a year (or $3.15 million over five years).

Brackenridge was coy about the milestones and key performance indicators that NZM has to meet to get the funding, but says they will be working with partners in the sheep and pastoral industries to achieve their targets.

It will be an extraordinary achievement if they succeed; total receipts for the fine-wool sector in 2009-10 were $84.3 million.

Brackenridge says world markets have changed and the NZ sheep industry has to change or risk being left behind.

"Our commodity selling systems are price driven and will not deliver the added value that sheep farmers expect," he says.

"In order for sheep farmers to survive they have to capture a greater share of the added value from the many by-products produced from sheep in addition to the sale of meat and wool."

He says for example, that sheep milk, cheese and baby and infant formula products offer opportunities for capturing a share of the high prices consumers pay for these products. Babies and infants allergic to cows' milk are often tolerant to sheep-milk products.

Sheep skins and pelts are sold as low-value commodities to merchant traders and textile manufacturers but go into high-value leather and wool-on-skin products.

Brackenridge says lanolin is exported from NZ in drums as a commodity, but lanolin-based products such as lipsticks, body lotions and hand creams are high-value consumer items.

Lanolin Trading Company (LTC) marketing director Phil Wilkins says NZ exports wool grease rather than lanolin. The company has the sole rights for marketing that wool grease to the world. The nearest refining company is in Singapore. International refining companies prefer to buy in multiples of 16-tonne containers. It takes about 125,000 sheep to provide enough wool grease to fill one container.

NZ wool grease is a complex mixture of wax esters of long chain fatty acids and alcohols, including cholesterol, lanosterol and dihydrolanosterol.

Manufacturing uses include lanolin, wool wax alcohols (lanolin alcohols), wool wax acids (lanolin acids), lanolin derivatives and wool wax acid derivatives.

NZ wool scours formed the LTC in 1962 to co-operatively market all NZ's wool grease production. With the decline in sheep numbers in NZ and Australia wool grease production has dropped by about 65% in the past 10 years.

China is now the world's largest producer of wool grease. Beef + Lamb NZ Economic Service figures show about 70% of wool is exported - 41,405t greasy, 90,983t scoured, 1610t slipe.

Wilkins says the benefits of having a single-desk selling system in NZ are that LTC understands the production and quality of wool grease from wool scours.

They can match the unique wool grease characteristics from each scour to meet their customer requirements and expectations as well as offer technical support and continuity of supply. That means they maximise the market value.

Virtually all wool grease recovered in NZ is from crossbred wool, favoured for lanolin alcohol extraction more than straight lanolin products.

While the grease from Merino wool is recognised internationally for producing higher quality lanolin products, more than 80% of the NZ Merino wool clip is exported greasy and is scoured overseas.

Wilkins says MNZ has not discussed with LTC its plans or strategies for refining and adding value to wool grease.

Brackenridge says there are also opportunities for nutriceuticals. People around the world are looking for food products that provide health and medical benefits.

The NZM plan is to develop partnerships and marketing strategies with existing businesses so that a greater share of the product value can be captured by farmers. If that fails, MNZ will explore opportunities for developing commercial ventures itself.

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