Selling wool via contracts gives security

Checking out the stock during a Marlborough Merino two-tooth competition is Simon Harvey who has made more money per kilo selling his wool on contract over the past two years.

06-12-2004 | Not Specified

Contracts are offering Merino growers an attractive alternative to selling their wool in the auction system.

Awatere farmer and chairman of the Marlborough Merino Association, Simon Harvey, has been selling between 40-50% of his wool clip on contract for the past two years. Contracts managed by the New Zealand Merino Company.

Harvey’s wool clip, at 19-22 micron, falls at the stronger end of the Merino clip, which fits a number of contracts.

These contracts offer Harvey security on that portion of the wool clip and helps to level out income, which Harvey says has been a big problem for Merino growers.

While Harvey says he has made more money per kilo selling his wool on contract over the past two years, he is pragmatic about the contract system, seeing it as long-term security rather than a way to make money.

“Obviously we would like to see contracts set at a reasonable level but we don’t do it to beat the market. They offer us a set amount every year and this gives us security on that portion of the wool clip.”

Harvey says he is quite prepared to lose money on his contracted wool in years when the market may be more buoyant; because these will be the years he makes more for his uncontracted wool.

Three years ago growers on contracts lost money when the price for medium micron wool lifted, but contract prices have subsequently picked up, balancing out grower returns over time.

Another advantage for selling wool on contracts, particularly to the “branded’ contracts such as Icebreaker and Smartwool, is seeing the end product in the shop.

“You get a sense of ownership and pride in the product.”

With two teenage sons Harvey sees the popularity of Merino active outdoor wear products such as Icebreaker, and enjoys seeing his product in the market place.

Harvey admits contracts do require a bit more work in the woolshed, as he is conscious of what he has committed and the need to meet the specifications of his contracts.

“There is more work and thought required in the woolshed. Ideally it would be better to have less contracts and a larger volume of wool for each contract rather than lots of smaller contracts.”

Harvey has never had a problem filling his contracts, but finds the NZ Merino Company very flexible and will do their best to help farmers meet their contractual obligations.

He says the NZ Merino Company have been very fair in how they handle the wool sent down for contracts. From my experience the logistical side has been very good. You can’t always get something dead right, but if a good line of wool is sent down they are flexible to some extent and will match the wool with the contract.

“As long as they know you have made a genuine effort to meet the contract.”

The NZ Merino Company lets farmers know what contracts are available, and working with the records of the individual farmer’s wool clip, they will work out which contract would best suit that farmer.

Contracts can be on an annual or two or three year basis.

He says every year he reviews the price being offered by the contracts, but also believes in loyalty, particularly to the branded contracts.

“I would like to think if we keep supplying them they will recognise the people who have consistently contracted to them, recognise that loyalty and perhaps be given the first right of contract renewal.”

Harvey says some of the contracts are still being fine-tuned and some contracts have adjustments built in, something he does not have a problem with.

“In my experience the contracts are well run and we’ve had no problems with the implementation of them.”

Around 40% of NZ Merino Company sales are by contract.

Chief executive officer John Brackenridge says contracts are available for a wide range of microns, from the finest 12.5 micron through to 23 micron and includes all quality types.

He says as the majority of the company’s clip sits around 19 micron, the company has put considerable resources into building up 17-18 micron contracts.

One of biggest advantages of the selling wool on contract is about the relationship built between grower and the producer of the end product, offering growers a sense of ownership and pride of the end product.

Looking at the bigger picture Brackenridge believes wool contracts are important to New Zealand agribusiness in that they link producers to end retail brands, differentiating NZ Merino wool to leaders in the international apparel market.

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