AWI CEO Stuart McCullough
WOOL brokers, processors and exporters have hit back at criticism of the open cry auction system by Australian Wool Innovation chief executive officer Stuart McCullough.
Mr McCullough has been quoted claiming a lack of modernisation and ‘digitalisation’ in the open cry auction wool-selling system.
In Western Australia last week ,while defending AWI’s Wool Selling Systems Review during the WoolPoll 2015 roadshow, Mr McCullough was quoted by Countryman newspaper as saying:
“There has been no modernisation in the present auction system in 100 years.
“It makes no sense that 95 percent of Australia’s wool is marketed through open cry,” he told the newspaper.
In the Stock and Land newspaper earlier this month, Mr McCullough made similar comments and despite the availability of online selling through AuctionsPlus Wool and Wooltrade, said there had been “no digital disturbance” in the wool auction system. He also said AWI was prepared to fund a new Wool Exchange Portal, as recommended by the WSSR panel, if it was supported by growers.
In a statement yesterday attributed to the presidents of the National Council of Wool Selling Brokers of Australia, the Australian Council of Wool Exporters and Processors and the Inland Wool Brokers Association, Mr McCullough’s comments were described as “false and misleading.”
Inland Wool Brokers Association Wayne Beecher said Mr McCullough statements downgraded the wool industry.
“They are untruths when you say it hasn’t been modernised in 100 years.
“Basically every sector of the wool industry is electronic far beyond any other agricultural business,” he said.
“To say it hasn’t been modernised in 100 years sends all the wrong signals out to everybody because it is not correct.”
He said Mr McCullough’s comments “had the look that AWI’s Wool Selling Systems Review had been pre-empted.”
“The perception is it is pre-emptory and the other perception is it is downgrading the industry.”
“You would have to say it seems as though they are not happy with so much wool being sold through open cry, but I don’t know what the alternatives are,” he said.
“If there were alternatives we would be using them a lot more than what we do.”
Mr Beecher said all brokers had tried to use Wooltrade and before that an AWEX bid and offer board system “with not much success; it is sort of very, very second rate to the open cry.”
“Open cry is such a quick way to transfer ownership, it’s 250 lots an hour, we can’t even get close to that electronically.”
He said brokers welcomed innovation and competition in wool selling, but were not interested in systems that did not include pre-sale wool inspection.
“If they came up with something that worked in the system and brought competition you would have to welcome it.
“We did not want to come across as negative about the Wool Selling Systems Review; we are happy if something comes out of it that makes a difference.”
Open cry comments not substantiated
ACWEP executive director Peter Morgan said Mr McCullough had not said why it was not a good thing that most wool was sold open cry nor did he substantiate the 95pc claim. Mr Morgan said if AWI paid for the Wool Exchange Portal it would be with woolgrower funds anyway.
“Our view is that it is difficult to argue that the review is at arm’s length (from AWI) in those circumstances.
“We still have no problem with the review.”
Mr Morgan said ACWEP supported the review process, but said there was an increasing view that the WSSR panel has some “pre-conceived views.”
In its second submission to the WSSR, this month, ACWEP said the panel’s attention has been almost exclusively directed towards the development of a Wool Exchange Portal, which had previously been described as a concept.
“The industry has not yet seen any data to support whether the heavy dependence on the open cry auction is a problem, or otherwise.
“ACWEP also believes that any commitment to funding a portal is premature until more detailed analyses of the costs, benefits and likely uptake by buyers and sellers is better known,” the submission said.
ACWEP also believed a number of issues it raised have been given inadequate attention, including pipeline costs, transparency of charges, exchange of ownership and the question of whether AWEX and AWTA should be merged.
Exporters and brokers defend wool selling advances
The three wool bodies said today’s auction system is vastly different to that of 50 years ago when open wool bales were placed on how floors for inspection.
“Fifty years ago there was only manual recording of information for the exchange of ownership and auctions were conducted in three sale rooms over several hours with no electronic technology, in thirteen auction locations around Australia,” they said.
The wool body leaders said there was now a modern-day, efficient auction system with electronic exchange of information and recording of each sale in three locations.
They said examples of the industry embracing change and modernising the auction system, included:
– the introduction of sale-by-sample replacing bales of wool on the show floor and the use of objective test data
– the introduction of sale-by-separation, which led to the reduction to three wool selling centres and significant cost efficiencies.
– pre-sale testing which provided woolgrowers with better knowledge of commercially important characteristics, including micron, yield, length, strength and the position of break.
The presidents said the wool industry was one of the first to extend computer use and electronic technology from finance and accounting functions into improving business efficiency.
“The industry pioneered the electronic exchange of data associated with the exchange of ownership in 1978.
“Advances in information technology allowed this to evolve quickly during the 1980s to the stage where high speed, cost efficient, error-free exchange of data occurs along all sectors of the wool pipeline,” they said.
Alternative methods can’t compete with open cry speed
The industry has also investigated or implemented alternative methods to the use of open cry auctions, since the 1970s, ranging from sealed electronic tenders, electronic offer boards, digital imaging of samples, and electronic replication of the open cry process, the wool leaders said.
“Offer boards are in place and act as an important supplement to the auction.
“Even so, none of the technologies developed to date have demonstrated the ability to extract the same level of competition, speed and efficiency as open cry auctions.”
The wool body presidents said more than 250 lots are sold each hour with the open cry auction system, providing instantaneous price discover.
“Our organisations and our members were, and remain, committed to the Wool Selling Systems Review process, but recognise that success will only be maximised if due process, as set out in the Review Issues Paper, is followed.”
With regard to Peter Small’s further commentary, there is no need for any switch to centralised trading, be it by either through traditional sequential open cry auction or through a more efficient electronic mechanism, to depend on terminating the buyers’ ability to access and inspect the samples of the wool on offer.
As was pioneered by EWP from the early 1970s, the relevant samples can be divided and displayed in locations that are convenient to the traders for inspection. Whilst those who are prepared to buy on description alone need not avail themselves of this opportunity, it can remain available to those who need it.
Arguably the biggest challenge that faces the industry is that unless significant education and coaching facilities are employed, the potential advantages of using an up to date electronic mechanism to optimise the matching of supply with demand and minimise instability within the pattern of price discovery, we face a potential repeat that “the baby will again be thrown out with the bath water.” As was the case in 1984 when Dalgetys scrapped rather than promoted the original EWP mechanism for computerised centralised wool trading.
Dalgetys did not consciously cut off their nose to spite their face as it were. They simply lacked the level of lateral thinking required to recognise the relative merits of the unique advantages incorporated in that concept.
Unfortunately most of the current discussion suggests that many, if not most, of our current key service providers remain deficient in the level of lateral thinking required to recognise the advantages the appropriate use of modern technologies is capable of delivering.
Given the industry’s proven historical inability to assimilate anything beyond the simplest incremental change it looks as though education and extension are likely to be even more important than mere innovation.
Alix Turner supports an ” independent panel of individuals with diverse expertise “. The trouble with this is they are easily snowed by the panel members who are familiar with the industry involved. Even the Federal Court was snowed in B.W.K.-Elders Australia P/L. V Westgate Wool Company P/L in 2004 as told in “The Wool Sting “. So it is not impossible. woolman.biz
Alix Turner’s contribution above demonstrates I would have thought, that the wool industry is responsive to competition. Our industry is not alone in being cautious about change, but technology does drive change, as Alex explains. Often early adopters fail, but the impact of their innovation, if it stands the test of time, survives. The wool industry has demonstrated that it does change and innovate, but it comes about organically, not as the result of some million dollar inquiry!
I do not agree with Alix’s assertion “that it could take external objective assessment and recommendation to put such a concept effectively on the industry radar.”
The problem as I see it, is that this is not a single item matter as many suggest, i.e. replacing the open cry with electronic. It is much more complicated. It entails at least two other matters; the requirement of the trade to inspect samples before sale, and the other, centralised selling. Of all these issues, the right of the trade to inspect samples is the most critical. It is very strange, particularly with a panel including Professor Graeme Samuel, Australia’s most eminent competition guru, for this question not to have been examined forensically. I would have thought that anyone looking to resolve this problem, knowing that it can only be resolved with research and technology, would have looked for blockages in this area. Sadly for some reason this has been overlooked!
Of course this matter is now developing into a real bun-fight; taking busy people in the trade from attending to the business of selling the nation’s wool clip and taking woolgrowers’ attention away from the utter incompetence of AWI in lifting demand for wool. Obviously, AWI will be hoping the distraction of the selling review will ensure that growers are foolish enough to once again vote for a continuation of the statutory wool tax on gross proceeds.
Whilst the questioning by the AWI CEO of how efficiently the sequential open cry auction process matches wool supply with demand may be seen as politically inappropriate, an accumulation of historical realities indicate that it is definitely a question worth asking.
Regardless of any questioning from within AWI, the responsibility for seeking answers to it lies in the “competition of ideas” on this issue that has been sensibly delegated to an independent panel of individuals with diverse expertise, that is not limited by the conditioning of a life within the industry’s traditional procedures.
Such external reviews are not uncommon at other levels in other industries, to guard against the risk that internal limitations on lateral thinking are not obstructing the recognition and adoption of constructive innovation.
Particularly given the long standing culture of complacency within wool industry service providers, the use of this external review is of major importance.
After all, how many of the claimed advances within the last fifty years were inspired from within the traditional service providers of the day? ‘
Pre-sale testing, sale by sample and description and sale-by-separation have been quoted as innovations adopted during the last fifty years. Where did the inspiration for these advances come from? Back in the late 1960s an innovative producer think tank approached the then National Council of Wool Selling Brokers suggesting that, in the interests of improving supply chain efficiency and benefiting growers incomes, these three areas of innovation be investigated and adopted. Basically the reply that they received was a courteous, “Thanks, but no thanks”.
This led to the establishment of the independent wool broker known as Economic Wool Producers (EWP) Ltd. From its first wool sale in August 1971, EWP employed pre-sale testing to introduce both sale by sample and description and sale-by-separation, by showing samples of their clients offerings on diverse locations. To their credit, it did not take the traditional wool brokers long to recognise and adopt the process of sale by sample and description.
In the other major area, EWP and the industry in general were less fortunate. In line with the 1972 final report of the cross industry Objective Measurement Policy Committee, EWP also introduced the process of “sealed bid auction” (or sale by tender) as commended in that report. By February 1972, that process had been computerised and remained in commercial usage first by EWP, later by the Farmers and Graziers Co-op. In 1984 it was “inherited” and immediately closed down by Dalgetys during their take over of F & G.
Although primitive by the standard of today’s computer and communication technologies, the principles incorporated in the framework of this system reflected some very “outside the box” later thinking from its originator David Coleman.
Needless to say, potential purchasers did not have to travel to a specific location to participate in the trading process. They just had to indicate which wools they were interested in, their upper and lower price limits and the quantity of each type of wool required – and submit this information by a nominated time. Once this time was reached and all this information had been received, the computer was activated to optimise the matching of the supply with demand to greatest advantage of the sellers. It is noteworthy that although this system preserved the principle of the second highest bidder setting the price it did deliver a more stable process of price discovery, because the full extent of available buying strength was known prior to any sale lots being allocated to any particular buyer. As well as being a quick and efficient process, this greatly reduced the unstable process of price discovery that is a chronic feature of the sequential open cry auction system.
Needless to say, it is fair to assume that if these principles were incorporated in a trading framework that employed present day computer and communications technology, the win/win gains to all concerned could be exceptional.
The only problem is that it could take external objective assessment and recommendation to put such a concept effectively on the industry radar.
Can I encourage Roland Ritson to make a late supplementary submission to the Wool Selling System Review? I am sure the review panel, particularly Professor Graeme Samuels would be most interested in having their attention drawn to an area of the wool industry that lacks competition!
As a superfine wool grower, I am concerned about the lack of competition in pre-sale testing. The AWTA has the patent on the Laserscan, therefore a vested interest in using it, although it is less accurate for the finest wool, particularly for curvature. The declining use of curvature measurement disadvantages growers who have maintained fine crimping wool at the expense of fleece weight. It was demonstrated that high curvature wool fetched more at auction. It is the new generation of buyers, buying for the newly rich in developing countries, who need it most, while traditional buyers from Europe can assess without it, contributing to their trade secrets to produce the finest cloth.
Very good article by Terry Sim today, no waffle in this one. Fine tune the present system — the way to go. woolman.biz
I question if it is an issue of speed, with the current auctions sometimes lasting just two hours, particularly in the west. If it takes three hours online, buyers can be looking at Facebook and Twitter while buying wool. Buyers should be happy that they can fill in more of their day.