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NSW woolgrower puts his argument for a zero wool levy

Grant Burbidge, September 29, 2015

WOOLPOLL2015 logo Mar10-15NSW woolgrowers Grant Burbidge and his wife Annette, operate a 22,000 sheep 17 micron fine wool business near Tarcutta on the south west slopes. Grant is a graduate of Wool and Pastoral Science at the University of NSW and has continually been involved with R&D.  He wrote the first Clip Care manual and was a founding director of Grass Farms Australia, now Growth Farms.  The former MLA director is also a member of the Fred Morley Centre Advisory Board at Charles Sturt University.  His philosophy is that to be successful in agriculture as an individual or an industry, the only static thing should be change.  With WoolPoll 2015 voting open until October, Grant Burbidge makes his case for a zero wool levy…

Wool industry productivity increases needed

The wool industry does not operate in a vacuum. It is an industry competing for capital with all other industries. It competes with competitive fibres for market share and it competes with alternate production systems such as cropping and beef cattle for land and resources. To compete effectively the wool industry needs to have productivity increases which are greater than its competitors. If the productivity increases are less than its competitors, the wool industry will continue to shrink back until it only operates in areas where it is impossible for other industries to exist.

Productivity increases in the wool industry have been declining relative to competing industries over the last couple of decades. Part of the reason for this lack of productivity is the lack of investment in research and development (R&D) and the poor allocation of levy payments made to Australian Wool Innovation (AWI).

AWI has a policy of investing 60 percent of levy payments into marketing and 40pc into R&D. Of that 40pc, 15pc of it goes into “off farm” research which may well be useful, but does nothing to improve on farm productivity. That leaves 25 cents in every dollar for on farm research and then at least half of that is spent on extension. That means about 12 cents in the dollar is spent allocated to on farm R&D. If the industry is to once again become vibrant and profitable, we need substantial investment in a well-targeted, applied and strategic research program.

Can AWI marketing investments increase wool prices?

The premise of investing in marketing is based on the assumption that the AWI investment will increase the price of wool by an amount greater than the funds invested. What is the likelihood of that happening? Wool price changes from day to day, week-to-week and year-to-year. The wool market operates in a global textile market. Eighty three percent of year-to-year changes in wool price can be explained by changes in the price of cotton and polyester. Therefore, at best, any investment in wool marketing can only influence 17pc of the wool price, the other 83pc is locked into the price of global textiles in general. Is it worth investing in a marketing program which can at best influence 17pc of wool price? This is a difficult question to answer, because no one can ever produce any data to substantiate the benefits of levy payer investment in promotion of wool.

AWI has recently commissioned Deloitte to conduct an ‘Independent Review’ of its activities as part of AWI’s statutory obligations. Deloitte concluded that “Investment in marketing and promotional activities have heightened market demand and contributed to an increase in wool prices”. However, Deloitte provided no evidence as to how they arrived at such a conclusion. One can only presume that Deloitte, like everyone else, is just guessing.

Wild dog control investment unlikely to increase productivity

In a rapidly changing world, investment in R&D is essential and investment in ‘blue sky’ research is absolutely essential to make sure we have a chance of productivity increases from technologies not even thought of yet. Over the last decade AWI investment in R&D has moved away from research and more into extension or implementation. An example of this is the investment in wild dogs.  No-one can underestimate the very real damage that wild dogs can inflict. However, apart from some investment in the Invasive Animals CRC it is unlikely that investment in wild dog control will provide productivity increases in decades ahead.

AWI genetic investment analysis is flawed

What the wool industry needs is investment in technologies which are likely to provide ongoing and cumulative benefits. One of these technologies is genetics and genomics. Where genomics may practically fit into the wool industry is still largely to be determined. An example of AWI’s lack of vision in this issue was the contracting of a benefit cost analysis to look at its investment in genetics and genomics over a three year period and to look at the benefits accumulated over those same three years. This methodology is flawed, as investment in research is likely to provide benefits (and in this case cumulative benefits) for many years after the research is completed. Some within AWI had an agenda which suited their purposes (not levy payers’), defining a narrow set of parameters and used levy funds to contract an ‘independent’ organisation to produce a report which could only arrive at a predetermined conclusion, to the detriment of the industry.

It is likely that the same strategy has been used in the Wool Selling System Review (WSSR) process, where most suggestions from the WSSR have been ignored and some sort of portal has been suggested without any analysis and any business case presented. Again at wool levy payer expense.

This year our wool growing business has invested more than 10pc of our gross wool proceeds into R&D in an area where AWI has previously invested. I have asked AWI for copies of all the reports from their programs in this area, so that I did not have to ‘reinvent the wheel’ in those areas. AWI could not provide copies because their reports were not digitally available and could not be found in their archive system. I cannot quantify what this has cost me because I still have no idea what outcomes, if any, the AWI funded programs delivered.

AWI is such a dysfunctional organisation, has a culture of stifling innovation and cannot substantiate the effectiveness of investment in wool marketing. With little opportunity to change the way in which wool levies are invested, the only alternative is to change the wool levy amount. I recommend that all wool levy payers vote for a zero levy.

Easier to try a new investment method than change AWI’s culture

I believe in investment in R&D and investment through levies. However, it will be much easier to start again with a new method of investment than to try and change the culture within AWI. AWI has outlived its usefulness.

The alternative is to team up with the other ruminant industries – sheep meat, beef and dairy – who also have pasture-based production systems, utilise genetics and genomics, all produce meat as a common product and have similar animal health and pest issues. There are more similarities between these industries than the differences in product output. Much of the R&D needed in any one of these industries will be beneficial in others and could be obtained at a lower cost through lower overheads.

Allocation of R&D funding could be as simple as each levy payer ticking a box to say where they would like to allocate their R&D dollars. This function could be undertaken by any organisation without the need for the expensive bureaucracy of AWI.

Sheep Central editor Terry Sim invites other wool growers to say how and why they will vote in WoolPoll 2015 either in a direct email letter or in the comment section. 

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Comments

  1. Jim Virgona, October 11, 2015

    Thanks Grant for a timely reminder that investment in research and development is exactly that… an investment. I agree that disestablishing AWI is now the only way forward. As an ex-researcher I have two concerns. Firstly, choosing which areas should attract funds is fine, but needs to be managed in such a way that projects/programs are given time to make gains – so maybe on a rolling 3-5 year basis and it should work out. Secondly, a far greater concern, who is going to be doing research in the future? The various DPIs and CSIRO are in decline and the university sector is too busy turning out cut-rate graduates. If a revitalised AWI-like body were to rise from the ashes (with a focus limited to R & D) this would need to be addressed.

  2. Ross Kuchel, October 9, 2015

    Great to see an argument based on fact and not emotional hearsay and statements. If a board resided over a company that continued to loose market share and value for 25 years, they would no longer have a job. How can we continue to support AWI when we continue to have a negative return on our investment levy and the market share of wool continues to fall? The best test to see how relevant AWI is, is to make the levy voluntary and then see have many producers and industry players invest in it. I think the outcome would be fairly obvious.

  3. colin agar, October 9, 2015

    An excellent article Grant.
    It should have been included in AWI’s WoolPoll propaganda booklets. I don’t understand how AWI can use our wool tax money to promote its own cause at election time. Hunting down wild dogs and running extension programs might cut it for the AWI directors, but if that is the best we can do the industry is doomed. And remind me, if the marketing effort has been working so well, why are prices for many Merino types bouncing along at five-year lows in $US, despite production being at the lowest level since 1925 and the huge increase in the number of wealthy potential customers in Asia and globally over the last 25 years?

  4. Mark Ritchie, October 9, 2015

    Great piece Grant.

    Growers should take a deep breath and sit down and work out what they’ve paid out in the way of wool tax in the last 10 to 20 years, add some compound interest and then think about the value they’ve received from that investment. Have we got a more vibrant, robust and innovative industry as a result of all those millions spent? The evidence on flock size alone (170 million sheep down to 70) would suggest not.

    If AWI was a listed company it would have been wound up years ago.

  5. Duncan Banks, October 8, 2015

    Great work Grant. Zero is the only way to vote. There are sufficient reserves in AWI to pay out all the redundancies, shut the doors and start again with a new set of parameters. The dairy industry budgets on 5percent genetic gain per year, compounding and many other rural industries are doing similar numbers. In the last 100 years the wool industry has only achieved about 1pc gain per year. No wonder producers have been leaving the industry. A few top innovative breeders have been achieving some impressive rates of genetic gain using all the tools currently available. Much of this work is only supported by the MLA as it does not suit the current thinking in AWI.

  6. Geoff Daniel, October 8, 2015

    What does it take for this industry to “get it”? We are commodity producers and the only viable strategy is to become more efficient. Wally and Stewart and their mates have got “it” wrong and thus are presiding over an ever-shrinking industry which falls behind its competitors just a little bit more each year. It is ridiculous that we have no choice but to fund such a bunch of nincompoops.

  7. Edward H Wymer., October 5, 2015

    I also agree that the industry should pay a levy. A re-reading of Richard Bell”s submission to the WSSR confirms my assessment of a score of 0/10.
    He mentioned “professionally prepared unskirted”. A contradiction in terms.
    All his assumptions on wool preparation are wrong. Sweat points do not scour out, unskirted wool should not be allowed on the show floor. Then we would see better prices. woolman.biz.

  8. Richard Bell, October 3, 2015

    Well done Grant, I believe that the industry should pay a levy, but I agree with the concept that I should be able to allocate where those funds are invested. We certainly have a problem with the AWI board and the concept that fashion, cat walks and pretty girls will increase the price of wool. Wool is a commodity and therefore we have to continue to lift production and reduce costs.
    It is interesting to read a comment above which states that selling unskirted wool is a backward step. It has been proven many times that it is possible to process unskirted wool to produce a very good top. As an industry we should be encouraging that process as it can reduce our production costs.

  9. Rosemary Hook, October 2, 2015

    Thank you Grant for the comment. I think the most damning indictment of AWI in your article, is the lack of availability of at least some past reports in digital format and their absence from AWI’s own archival system. This means that money spent on the research on which those reports were based, has been totally wasted. All research results, whether “positive” or not, are important. It is also an indictment of the auditors that this failure in research administration was not identified.

    Allocation of funds to inappropriate research is bad enough but failure to maintain proper records of past research is absolutely inexcusable and in my opinion, the AWI board needs to be held to account.

  10. Edward H Wymer., October 2, 2015

    Very impressive letter from Grant Burbidge, on first reading. Second and third not so good, not one positive suggestion for NOW as to what can be done to improve prices.” The only static thing should be change” sounds impressive, but what has it got to do with wool. Talk of “genetics and genomics ” is pie in the sky. ” Blue sky research ” is the same, only with rare luck will it be commercial, in many years time!
    I would ask. Why is wool the only product that’s preparation and presentation has been allowed to go backwards over the last twenty odd years? Wool has been allowed to be sold unskirted and unclassed, where historically that was nearly a hanging offence. We know it was forced through by the major wool brokers.
    No one has the power to reject poorly prepared wool from the auction floor. The Australian Wool Exchange should have that power.
    Buyers want even, straight lines of wool; that is what matters to them and they should be catered for. woolman.biz

  11. David Lindsay, September 30, 2015

    Burbidge’s article is spot on and well thought through. We need a completely different model for research and development in the wool industry. The present one is dysfunctional and continuing it in anything like its present form is a waste of our money. Grant exposes a lot of the spin that we are bombarded with at this time every Wool Poll. Isn’t it strange that the only commissioned “independent” reviews of this R and D corporation are done by very expensive business consultants who have no expertise in research or development? They are able to comment more or less favourably on whether the corporation has called enough meetings or ticked enough business-speak boxes, but don’t even attempt to address the lack of any semblance of transformational research as Grant Burbidge has done. No serious wool grower can look dispassionately at what AWI is doing and feel that there is even a faint possibility of a game-changing discovery in the foreseeable future. I voted nil.

  12. Peter Small, September 29, 2015

    Congratulations Terry Sim on throwing Sheep Central open to a much-needed debate about the wool tax poll and congratulations Grant and Annette Burbidge on an excellently thought through argument for zero tax. Come on supporters of the wool tax, let’s hear your arguments in favour of the tax or are you all just like lambs happy to be taken, yet again, to the slaughter!

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