Wool board chief sets out views on wool price

Why is the price paid for wool so poor compared to previous years?

* Under the old guaranteed price scheme, which ended in 1992, the price producers received for their wool was 100% more than its market value. Since the end of the scheme, producers have received the market value for their wool and returns have varied from 60p to 100p/kg.

This year’s wool price has been hit by the effective closure of the Chinese market after the anthrax outbreak in Wales, which meant UK “greasy” wool could not meet animal health requirements needed to export wool. But there has been a big upturn in demand from China since the ban was lifted in January.

Wool is traded in US dollars and the weaker dollar against sterling means that our wool is comparatively more expensive than in other countries, about 10p/kg compared to our main competitor, New Zealand. Low wool prices in the UK result from the global market rather than anything happening in the UK.

Why can’t you take into account costs of production when you sell wool?

* It would be ideal if we could take into account all costs and then sell at a profit, but the global market controls the price the board can pay producers.

Our prices are comparable to wool values in New Zealand, the main crossbred wool supplier. Wool is sold at auction on the open market, so if we took into account our costs and tried to sell at a higher price than comparable New Zealand wool types, we wouldn’t sell at all. The price is market-driven price, not cost-driven.

Why can’t producers be paid 100% up-front for their wool?

* This is a perennial question that harks back to the days of the guaranteed price scheme. That is when the government was the lender of last resort to the board and the board was borrowing up to £50m from the banks to pay for wool.

We no longer have those resources. We were given £10m as a capital base when the scheme ended. This year, the average advance of 60% that we are paying producers has become 85% or more because of the falling price, and we are running at an £8m deficit. That is because the wool comes in from producers from May to September we pay for it and then we have to sell it. And we often sell with “terms”, so some wool sold in May 2007 – for which producers were paid in May 2006 – may not generate income to the board until August.

Can you relate the price of wool to the price of product?

* It’s very difficult because producers see lower prices for wool but higher prices for wool products, and in the UK 75% of the wool goes into carpet manufacture. Processors and manufacturers are not making big profits.

The initial process that “greasy” wool has to go through before it can be made into carpet yarn involves scouring. There used to be seven scourers in the UK now there are two. The price of scouring in the UK is 20p/kg and hasn’t changed for 10 years.

The price to scour wool in China is about 5p/kg, making it cheaper to send UK wool to China for scouring and bring it back than it is to send it to Bradford. This is what the industry is up against and China is becoming a main source of wool processing and manufacture.

Why have the board’s costs risen?

* In absolute terms the board’s cost have not risen. There has to be an infrastructure in staff and buildings, but we have reduced staffing and closed some depots to contain costs.

From 1990 to 2000 we managed to lower the cost from 32p/kg to 17p/kg, despite inflation, but those costs have now risen again on a p/kg basis after the dramatic reduction in the clip. We have had a further strategic review and will continue to rationalise with the aim of reducing those costs by up to 3p, although that will quickly be absorbed by inflation.

Would producers be better off without a board?

* Some farmers seem to think they would be. They see the prices of wool products and feel they could earn a higher return if they marketed their own wool. But my response is to ask: “Why do other EU countries all want to create the equivalent of a wool marketing board?”

There is a European Wool Group active throughout several EU countries, which is desperately trying to establish a formal wool marketing structure, driven primarily by depressed prices which are very much lower than ours. We have recently heard from a Spanish sheep farmer who said producers in his region had been offered just E0.5/kg for 20t of Merino wool that had cost five times that amount to shear. In fact, the wool was certainly worth five times as much, but there was no marketing body to help achieve that for the farmers.

Why can producers only sell wool to the board when they can sell their other produce wherever they want?

* Without a board, wool would have to be sold privately. The Milk Marketing Board went and now there are plenty of milk producers who rue the day of its demise.

Commercial buyers would have a field day if there was no British Wool Marketing Board and would only buy from the biggest producers with large clips to sell. Smaller, isolated producers would not have their wool collected.

The board does give exemptions to artisan and craft workers who need up to 3t of wool for their own use. But, although several have been granted in recent years, few have succeeded. The remaining large scourers are not keen to deal with small throughputs of wool.

Various bodies have looked at developing their own scouring plant, but the costs of dealing with the effluent have so far been prohibitive. Moving into the open market with wool products is a high-risk business and only three or four have succeeded in recent years because they had exceptionally good products targeted at a niche market.

Q. How do you promote British wool?

* We still invest a significant amount in promoting wool and wool products, but believe the most effective way to use the board’s funds is to work in partnership with manufacturers and retailers.

We work with the 300 licensees who use the shepherd’s crook quality mark on their products to exploit the best possible marketing opportunities. These range from advertising material down to the product label, all with the aim of promoting British wool.

Our promotional work is targeted at the USA, Europe and Japan and there is ongoing public relations providing articles, press releases and advice to a large range of international carpet publications and lifestyle magazines where wool carpet and other wool products are featured.

We work closely with the Carpet Foundation and other international bodies committed to successful wool marketing. In 2001 the New Zealand producers decided to cease direct promotional funding. The subsequent fall in demand and price have led to New Zealand reinstating its wool promotions.

With oil prices rising isn’t there a need to promote wool as an eco-friendly fabric?

* Yes, and as a result of greater co-operation between wool producing countries worldwide there is an active discussion under way about carrying out the necessary studies to prove the environmental strengths of wool compared with synthetic materials.

Even compared with a couple of years ago, the “green” image of wool is now gaining pace. We are looking at changing the message of wool promotion to focus more on its environmental qualities and to back this up with hard facts and data to show that we are not just simply jumping on the green bandwagon, but have a genuine product with a carbon footprint that is hard to beat.

British Wool Marketing Board managing director Ian Hartley is sympathetic to farmer frustrations over the price of wool, but is adamant that disbanding the BWMB would not improve farmer returns.