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Don’t ‘shoot’ Wally, he is only symptomatic of the problem – Small

by Peter Small, wool grower and manufacturer, 11 September 2017
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Wool grower and manufacturer Peter Small

AUSTRALIAN Wool Innovation chairman Wal Merriman sitting behind a one-way mirror observing the discussion of a focus group has affronted many growers.

Dissension has been building in the bush against the AWI chairman for some time. In a way I find myself in some sympathy with Wal Merriman; he is sadly symptomatic of a much bigger problem.

I think I have known every chair of our statutory wool research and promotion organisations whatever their name, since Sir William Gunn. Mr Gunn became chairman of the organisation that preceded the wool board, the Australian Wool Bureau, in 1958.

In the late 1960s, I was a member of the Australian Wool Industry Conference and Gunn needed the block of votes of which I was one, for the introduction of the Reserve Price Scheme (RPS). Gunn told me over a very expensive dinner at the old Australia Hotel in Collins Street that he came to the wool industry because he believed it was corrupt and needed reforming.

Mr Gunn and probably every chairman since, including Mr Merriman came to the position with the very best intentions. However, in the end most were allured by the ‘honey pot’, the statutory wool tax of 2 percent of the price or amount paid for the wool, net of GST, handling, storage and transport costs. The institution they hoped to reform finally consumed them.

In my view the reason is simple, the system is flawed. How many more times do growers have to witness yet another organisational failure before the penny drops? And it’s not the chairman, nor the board that is the problem, it’s the statutory tax. This ‘honey pot’, together with the blurred area called promotion, creates a toxic mix.

The collection of statutory taxes or compulsory levies, call them what you will, should never be contemplated unless there is clear evidence of market failure.

As a wool grower and a player, albeit a very small one, in the textile trade, I believe there is no substantive evidence of market failure in respect to promotion. What’s left of our once great wool industry is predominantly in the luxury fibre market. The qualities of this luxury fibre are well understood by the brands and these brands all compete or collaborate to promote their product to the market. There is absolutely no evidence of market failure.

However, in respect to research there is clear evidence of market failure, and also probably in the area of the collection, analysis and distribution of statistical data. AWI’s is not the model anyone in the world would ever contemplate establishing if it was intended to create a robust, cutting-edge research-funding organisation, an organisation to fund creative research; the very foundation of a productive industry for the 21st century.

We could look to successful models around the world like Silicon Valley. Yes, perhaps a bit ambitious for us, but what about Cambridge University, who were jolted out of their slumber by the competition from Silicon Valley? Professor Jeremy Sanders, Pro Vice Chancellor at the University of Cambridge, said recently, commenting on the burst by the university back onto the world research stage, “hire people smarter than you, give them as much freedom and research funding as possible, stand back and reap the harvest ten years later”.

Exciting things are happening. In July, I visited the University of Leeds. Leeds was for many years one of the major British Textile centres with strong textile research activity. However, in the 1990s the Department of Textile Industries closed due to falling student numbers, reflecting the decline of British textile manufacturing. In 2000, the new School of Design was established and brought together textiles with fashion and design and created a vibrant and thriving activity.

Recently, Prof. Chris Carr has been appointed to re-establish Leeds as a global textile research centre focused on the textile technology/design interface. Prof. Carr is a man with a big vision and strong industry support. His mission is to re-establish the pre-eminence of British Textile Industry, particularly in sophisticated niche areas. This is the sort of leadership, energy and vision our industry needs now at the greasy wool end.

With Australia’s sheep flock reduced from nearly 180 million to about 74 million and only an estimated 38.5 million ewes of which about 70pc are Merinos, we too are in desperate times.

Research is essential to underpin our productivity for the future. To get serious about research our industry must withdraw from promotion and establish an organisation properly structured and funded to deliver the research results our industry so desperately needs.

Free from the diversions of promotion and ideally free of a statutory tax, our industry might also manage to escape the biggest quagmire of all; the politics that have continually dogged our industry.

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  • Jane September 11, 2017

    No longer can we afford to hide behind those in moleskins and navy blue jumpers, who are the cause of this mess. It is the innovative farmers who have channelled their businesses into a more productive model by looking outside the square. Every other farming industry has gone ahead in leaps and bounds, but most of the merino industry is still trying to flog animals based on an old world selection criteria. Open your eyes, with one large social media world campaign the wool industry would be gone. Full names required in future for reader comments please Jane, as per our long-standing comments policy: https://www.sheepcentral.com/about-us/sheep-central-comment-policy/ Editor.

  • Andrew Farran September 11, 2017

    Many good points Peter, especially the notion of hiring people better than oneself and letting them get in with it.
    I agree that the market promotion concept has got away with the spoon. The present higher prices for wool have nothing or very little to do with promotion. It is as always, a supply and demand thing. There is probably a finite limit to demand as it now is, meaning that the present size of the Merino flock is about right. Another 25 million or so sheep would increase supply and reduce demand and the presently just profitable wool prices.
    As for research, the groups that demonstrate cost-effective performance overall are the CRCs and the ewe/ram evaluation trials. AWI probably sees these as not grand enough for them, but so much for that. Meanwhile, anyone for roundabouts?

  • Martin P Butler September 11, 2017

    Peter Small could potentially be interested in bringing small breeders, of which I’m one, together in developing a structure to ensure our product is effectively marketed and not consumed by one large holding.

  • Peter Small September 11, 2017

    Martin, I would certainly be interested in encouraging the Minister for Agriculture, Barnaby Joyce to sponsor an international conference to explore possible models our industry might adopt to create the sort of research funding institution our industry needs and deserves — and funded without a statutory tax.

  • Denis Tinkler September 11, 2017

    My limited knowledge of the wool industry suggests Peter Small may be right. I would extend those comments to the sheep meat industry, which appears to me to be on the same path of wandering in a wilderness of self-justification with the real drivers of the industry, the sheep, mostly heading seriously in the wrong direction. Also, the figures quoted on the size of the Merino ewe numbers should be a wake-up call to all prime lamb producers.

  • Tim Mort September 12, 2017

    Great article Peter. I too agree that the statutory levy all going to one party does not help our cause.

    I would suggest an alternative structure where there is still a compulsory levy, but the wool grower has options as to who receives the levy for a four-year term. Thus creating a competitive process, whereby parties can pitch to levy payers how they are going to spend the money and why they think that is the most appropriate approach. This in my opinion would remove much of the waste seen within Australian Wool Innovation at the moment.

    I think the set-up and rules of such a system would need some thinking in order for it to work, but it would have to be an improvement on what we see now.

  • Jim Gordon September 12, 2017

    Peter. I have enjoyed ready your article very much, and I agree, the luxury fibre market is where it is all at. I agree, we have to park the promotion and go hard on the research. Still, to this day, most wool growers have no idea which wool processes the best. I have just come back from China and they are making the most superb, soft handling, light weight fabric for base layers and women’s fashion. I suspect they have done a joint venture with the Italians at some stage and learnt the trade. This is the growth area. The consumer doesn’t need wool so much today to keep warm; it is more about light weight fashion.
    In my opinion, we need a selling system that can separate the better processing wools. We have a situation at the moment, where a consignment of wool is put together, maybe ten or fifteen growers, and one ends up with say, an eighteen micron top that is of average quality. Someone has come up with a figure of thirty microns and greater will be scratchy. What about 29.5 microns?
    The Chinese are tipping chemicals and all manner of stuff onto the wool to bring it up to next-to-skin comfort. We can produce wool that will spin more metres of yarn per gram and have primary fibres that are four or five microns finer than the secondary fibres.
    Like owning the worst house in the best street, the worst house gets carried by the rest. The worst coarse-edged eighteen micron wool still gets put in the eighteen micron basket, killing that consignment.
    Wally is a good bloke but he is in the wrong job. Some of the Chinese said to me, they couldn’t understand him. I said to them, his own brothers can’t understand him.
    Fashion is driving this industry and with fashion the thing you get above all else is change. We have to have someone at the top of the tree that can embrace change. At the moment Merino wool is 0.34 percent of a 96.6 million ton global fibre industry. We can easily double production and we must, to keep our foot in the door. However, we have to give the Chinese a better processing wool so they can then supply a better fabric and in turn give the consumer a better experience.

  • Peter Small September 12, 2017

    I like your concept Tim, of creating some “competitive tension” by giving the levy payer discretion about where their levy is directed. Some great ideas are emerging, so let’s see were this takes us. Certainly there is widespread concern as to how things stand at the moment.

  • Simon Wells September 12, 2017

    The headline ‘Don’t “shoot’ Wally, he is only symptomatic of the problem’ refers to the current scandal where a confidential focus group discovered it was secretly monitored. Whereas Small’s interesting article relates to the structure of the entity that might replace AWI,
    hopefully sooner rather than later.

  • James Jackson September 12, 2017

    A couple of comments on the incident and the article. The comment re no market failure in promotion definitely resonated with me, although I would concede a lot of graziers think it is a very valuable way to spend socialised dollars. I think AWI is not unique in being confused as to its role and the ultimate value of promotion.
    The Sheepmeat Industry Strategic Plan attempted to compare return on investment in the strategic themes. It is a useful tool to inform strategic priorities. I am delighted to see this pay dividends. Regarding a re-focus on market access activity within the MLA, this is something there is clearly market failure in and offers significant returns to producers. Market access and non-tariff trade barrier wins keep delivering to the bottomline long after the latest lamb ad is forgotten.
    Presently, in the red meat industry, there is unused matched federal funding for research. Some of this headroom is being used in partnerships funded through the MLA donor company; however, I believe there are still dollars that could be diverted from marketing to research. I am not sure on AWI’s headroom, but I suspect it is significant. The Federal Government matches research spending based on industry gross value of production. It does not match industry promotion funding.
    The AWI chairman looking through a one-way mirror is an interesting way of consulting with the industry. AWI does not have a peak council to shape strategy and oversee the activities of the organisation. No prescribed ” responsible organisation” or RO. I believe it is high time this is corrected. WoolProducers Australia, with its commercial wool grower focus — the wool tax is payed by commercial growers — is the obvious RO choice. Its governance appears robust and is broadly representative of the industry. Why AWI was set up like it is, is curious to say the least.

  • Don Hamblin September 12, 2017

    First of all, there a need is for the WoolPoll to be entirely independent of AWI, with what levy choices growers are going to vote on being entirely what the panel chooses.
    Secondly, there is a need for the research and development system to evolve, like the statutory superannuation scheme has. i.e. no longer do the industry super organisations have a monopoly. We could have universities and other research organisations registered with the Commonwealth Government, to receive levy funds. That way, growers would have real choice and they would have real choice as to what was researched. No longer would those growers with minority problems not get their problem researched. Also it would free the researchers to go out and sell themselves and their projects to any grower. The payment of statutory super to the SCH online clearing house is a model to copy, that would allow research and development levies to be distributed to the research organisation of the levy payer’s choice.

  • Martin Oppenheimer September 13, 2017

    Well said Don. I fully agree on both points above.

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