SUMMARY OF BATTELLE’S WOOL REVIEW

Press, Volume CXI, Issue 32720, 24 September 1971, Page 14

SUMMARY OF BATTELLE’S WOOL REVIEW

The Wool Board has issued a booklet which includes a summary of the conclusions of the Battelle Memorial Institute, which was commissioned by the board to make a detailed study of all aspects of the wool industry both within New Zealand and overseas.

The Battelle investigation defines three problem areas for wool, says the booklet. While there is some overlapping of aspects of these problems, the areas can generally be described as: The problem for the wool user: Wool users feel wool has good characteristics in the end product, but they have problems in getting it there. Many say that they can use a competing fibre more easily and sell the end product just as readily. The problems include greater losses in processing wool, compared with synthetics, the yams are weaker and not so well suited to highspeed machinery, delivery is uncertain, prices fluctuate, the quality is inconsisten and there is no quantity discount. The problems of the auction system: Auction selling has some advantages. It simplifies the valuing of different types of wool and enables large volumes to be handled reasonably effectively. However its disadvantages are many. They indude a tendency to introduce price fluctuations and a tendency to encourage a large number of wool types. Auction rules out discounts for large purchases and creates a considerable delay in payment to the grower. TWpeahtaasof the handling system: At present wool moves to the market through a system of relatively disjointed agencies. For the most part each is striving to do a good job but is constrained by size, lack of capital and competition. There is no centra!

direction or decision-mak-ing, so there are few coordinated programmes and few efforts at marshaling strengths to combat competition.

These observations were drawn from the following conclusions of the Battelle investigation: Markets: None of the existing markets for New Zealand wool is vigorous. The situation is weakest in the United States where the recent recession has severely depressed wool markets. There are signs of recovery and long-term trends for textile products are favourable, but wool may not share in thia growth unless its competitive posture is improved. In the United Kingdom the use af wool is slowly declining and it appears this wiH continue through the next decade. hi Euroae. trends are mixed, wftb wool use deciusiag in France and the *v tW • l—ivccnozHßMiSy iwviinig in Italy, showing a slight increase in Belgium and an increase in Germany. In Japan wool use has increased over the last decade, is down in the last year but may increase gradually in the future.

Carpet production, the largest end use, will increase in most parts of tile world, but wool may not participate in the increase. Wool use in carpets in the United States will probably continue to decline, although carpet production is expected to resume growth at a moderate-rate. The use of carpet wool in the United Kingdom is expected to decrease as production tends away from woven constructions. In Europe the picture is somewhat brighter with projections indicating increases in wool use in France and Germany and wool holding its own m other countries. The Japanese now use little wool in carpets, but carpet production is expected to increase dramatically in the coming two decades. The second largest end use for New Zealand wool is the woollen-system fabrics. Production of these has levelled out or declined in all countries except Japan and wool as a percentage of all fibres has also declined. The use of New Zealand wool in knitwear is relatively small but significant and is tending to increase. From its survey of markets Battelle concludes that despite its eroding market position there is still latent consumer demand for wool. Competition: . Synthetic fibre competition continues to be strong. New wool-like products are being introduced, such as third generation nylons. New competitive devices, such as integration into the textile industry, are being advanced.

Promotion, , advertising and other marketing techniques are still being strongly pursued. However, price cutting seems to have slackened, especially in Europe. But the actual prices at which synthetic fibre transactions take place are very difficult to determine. The economies of scale of production still exist New plants will be larger, demanding larger m arkets to assure higher throughputs. Costs of synthetic inputs have increased, but the majority of these are byproducts of other processes that would :have little or no value except as inputs to the plastics industry. So while synthetic prices have firmed, and the rapid price decreases have probably levelled

out, it is unMkeiy that actual price increases will occur in the long run. Marketing system: The grower is the first link in tire wool marketing chain. His net income from wool continues to decline, he is becoming gradually more meat than wool oriented, he is less interested in wool

preparation, he has little direct konwledge of existing marketing conditions. The delay in receiving his cheque for wool put through auction, together with his flagging interest in wool is turning him increasingly to private selling. The brokers are fragmented, quite insulated from the user marketplace, and very conservative. They are majMug changes to promote efficiency of handling and they do move a large volume of wool. The auction has both advantages and disadvantages. It is an equitable system of valuing a large volume, diverse product such as wool and it makes price and volume information readily available. However, it makes prices fluctuate, it introduces supply timing and delivery problems.

it creates conditions in which larger purchases tend to cost more per unit than smaller purchases and it serves as a barrier to communication between buyer and seller qn Other than price and volume’ information. ’ “‘r . The wool trade is- fragmented and made,up mainly of fentiyely smaller firms compared with synthetic competition, highly : conservative and oriented mainly to traditional wool users. It is not generally attuned to the technology of the textile industry but is highly skilled in the traditional complexities of wool. It is highly skilled in the logistics of wool shipping and is the major contact of New Zealand with the textile industry, but is not generally skilled in using modem marketing techniques. The I.W.S. can be viewed as part of New Zealand's wool marketing system. It is engaged primarily in consumer promotion of wool and secondly in wool research and development. However it is not involved in to any great extent in the advertising and promotion of wool at any levels other than the consumer and is not involved in raw wool marketing. Handling and distribution: The handling and distribution system effectively moves a large volume of wool but the current system has no central control so changes are slow and difficult to effect. Costs are increasing at virtually ali stages. Some efficiencies are being introduced but will have a relatively minor effect on the over-all cost picture. Private selling is increasing, threatening the proper functioning of the auction. It offers some advantage to grower and buyer but the private selling system may incur many of the costs and problems of the auction system if it expands beyond current levels.

The fact that private selling has increased substantially in recent years is an indictment of the auction system. The current system is responsible for wool availability and delivery problems experienced by mills. Wool pricing and price levels: Wool prices are fixed at auction, but many factors existing before that time are actually responsible for bidding strategies and limits. Consumer incomes and purchasing decisions are a very important factor in prices, as are fashion changes, which are becoming more volatile. Synethetic competition has been depressing prices at all market levels, and the textile industry has . been tending to discount wool for its difficulty of processing and manufacturing, its delivery problems, its quality inconsistency, its price vwtabli'ty, its lack of customer services mid its lack of volume. discount. Changes in the structure of the textile industry will make the actual price paid less important to the user than a stable price and consistent quality. Analysis indicates that under the current system wool prices are likely to increase very gradually over the coming decade, but by 1980 -will still not have reached levels favourable to growers. i • • ■