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Wool growers warned on viewing Wool Exchange Portal as sale option

by Terry Sim, 21 August 2017
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AWH CEO Michael Jones.

WOOL-HANDLING giant AWH’s new chief executive officer Michael Jones has warned growers against viewing Australian Wool Innovation’s proposed Wool Exchange Portal as a means of bypassing brokers.

At the inaugural AWH Wool Export Innovation Summit – Woolex — in Geelong on Friday, Mr Jones said he believed growers would be financially disadvantaged if they sold wool through the WEP.

Mr Jones said it was not the intention of AWH to compete with the proposed Wool Exchange Portal or Wool Q, as he is calling it.

But the AWH CEO is a member of the WEP steering group and said he been forthright in pointing out where he thought the WEP was “foraying into the commercial world” or outside its terms of reference, and had defended the commercial interests of broker clients.

He doesn’t think the WEP will threaten AWH “per se” and believes it will be “a pretty awesome platform for the grower to have information and I think it is something that is worthwhile doing.”

Mr Jones said the WEP was changing its name to Wool Q because it would be “wool headquarters”.

“The (title) ‘Wool Exchange Portal’ is probably the misnomer that gives most people the most angst because it doesn’t accurately reflect what it is doing; it is going to be the headquarters and it should be the go to spot for data and information, the exchange of information and things like that.”

He suggested the WEP’s name would deal with perceptions that it is an exchange “like a stock exchange and that it is a commercial entity for buying and selling wool.”

“It’s not what it’s meant to be.”

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 AWH initiatives driven by growth in alternate models

When asked by Sheep Central if some of the AWH initiatives had been prompted by the advent of the WEP, Mr Jones said some AWH clients were starting to span and duplicate AWH services.

“They are not direct competitors, but they are providing an alternate model, whereas we’ve undertaken not to become a broker and not to become a buyer, but they are spanning wool handling.

“When you own all the selling systems, you’ve got all the data and you’ve got 54pc of the wool in the country coming through you, you have some market strength,” he said.

“I would be stupid not to protect my company and not to have an aspiration to do things better by doing that.

“Plus the WEP, I think it is mostly misunderstood, poorly identified and I don’t want people thinking there is another way to do it through the WEP, so I want to remove some of the options for them by us taking and occupying some of the space.”

Mr Jones said the AWI’s WEP or Wool Q might not make massive industry changes “in and of itself”.

“But I think it provides an insight and a window into the opportunity and that that may gather some momentum, so that it brings some change in the industry.”

Concern if WEP is seen as potentially bypassing brokers

Mr Jones said his concerns with the WEP centred on the commercial impact that it might have and if there was a potential for it be seen as a way of bypassing brokers and the current supply chain.

He believed there were elements of the WEP which would create commercial opportunities for AWH and brokers, but was concerned about the expectation of what the WEP is meant to be, especially in regards to wool trading.

Mr Jones said he was annoyed about talk of farmers thinking of selling their clip from the farm through the WEP and having it shipped direct to China.

“The logistics of moving a couple of hundred million kilograms of wool is a lot harder than it looks and the costs that would be driven because of the lack of economies of scale and efficiency would actually be prohibitive to the farmer.

“It annoys me when people say those things, because they are so misleading as to what is actually possible,” he said.

“I am absolutely convinced and it is not my area of expertise, but I think I am smart enough to work this out that growers will actually be financially disadvantaged if they sell their wool through the WEP.

“The best way they are going to get their price is to sell it through a competitive auction where if I’m bidding against this guy I can run him up because I want him to run out of money on this lot so that I can buy the next lot – I mean that’s the way it works,” Mr Jones said.

“It is a combative sport in the auction room and I think that is the best way for wool to be sold.”

“The most robust and the best way for a grower to get a return is to do it in a formalised way, with formalised testing in an auction environment,” he said.

“I honestly believe that misinforming some of the growers, the 48,000 registered growers who provide wool, they I think will be misled if they think that there is going to be this enormous gain for them of not using a broker to sell wool – I think that is a misnomer.”

WEP was never about going around brokers – AWI

AWI’s eastern hemisphere general manager and fellow WEP steering group member John Roberts said “the WEP was never about going around a broker and that’s why we had a number of brokers on the steering committee”.

“One of the major goals of the Wool Selling Systems Review that was done was to investigate whether greater efficiencies could be created in the supply chain and whether more competitive tension could be achieved.

“I think what Michael has presented to us today is an example of that kind of competitive tension.

Mr Roberts said he was not saying that the AWH initiatives were a result of AWI’s Wool Selling Systems Review.

“But it is certainly the sort of outcome that our review was hoping to see, so that is pleasing.

“From a wool grower’s perspective, who we (AWI) represent, one thing that growers really really want to see is greater cohesion of the industry and less duplication.

“So I think a lot of the work that has been done here today it looks fantastic, it’s creating efficiencies and the big priority I guess is to make sure it can somehow interface with the Wool Exchange Portal.”

WEP working group chairman Will Wilson said the Wool Selling System Review was all about encouraging and promoting industry innovation particularly in the digital space.

“AWH have been directly involved in the WEP project for the past 18 months and we have always been keen to share ideas and thoughts about industry development.

“I refer back to the clearly articulated vision of the WEP developed by the Working Group,” he said.

Mr Wilson said the WEP aimed to be the primary on-line entry point for wool growers to access industry information, data, selling choices and trading opportunities.

“This information will be provided by a collaboration of wool industry institutions and stakeholders.

“The development of the WEP is not intended to “crowd out” additional industry innovation, rather to encourage it and connect with it,” he said.

WSSR discussion paper influenced AWH CEO

Mr Jones endorsed Mr Roberts comments and said while he was being interviewed for the AWH job, the WSSR discussion paper was one of the first documents he read.

“It sort of gave me a bit of a timeline of my first 100 days’ document which I presented to the board to say ’these are things we are going to look at”.

“My predecessor and I both think there are opportunities that are going to come out of the WEP for us, to have a way for us to get a message out, as well as the brokers,” he said.

“As long as we remember— as I said I have a responsibility to my clients to try and protect them, that it doesn’t grow outside its remit, and at the moment I am comfortable and I am more than impressed with what’s being developed and the quality of how it’s going.

“It should be an awesome industry tool once it is up and running.”

WEP’s data aspirations are a technical challenge

Mr Jones said AWI’s aim for the WEP to be the central repository for wool industry data “is the biggest technical challenge that we face with AWI and the way that it works.”

The WEP’s proposed functions include enabling growers to access their historical data and to provide a central repository of wool test and wool price data for the industry. Mr Jones told brokers at Woolex that AWH already held an enormous amount of data on brokers, classers, growers and their mobs.

“We can tell you everything there is to know about every grower in this country and about their wool, just about, because we’ve got that data and we can access it,” he said.

AWH and its shareholders had invested a lot of money in supporting its IT and data system.

“What we have is nigh on a million square metres of wool store, a system with 26 years of data in there down to most minute element of every wool bale that’s gone through the auction room, because every bale is sold in our auction rooms, so we’ve got the data,” Mr Jones said.

“That is our lifeblood and I don’t know why I would give that to the WEP for free, and that’s the discussion that I’ve had to them, what’s my motivation for doing that?

“I’m a generous industry supportive benevolent sort of guy but commercially I can’t see why I would do that,” he said.

“Quite apart from that you get into a very complex IP law issue of is that our data really, or is that the data of the growers because they pay the broker who pay us … it is a very very complex issue.

“I don’t really want to spend my next 10 years in court going through that, so therefore at the moment we are saying we will be co-operative to a point, but we’re not going to give away anything that is the intellectual property of the brokers; of how they lotted and developed the IP of the owners etc.”

Mr Jones said the EULA (end user licence agreement) on the WEP would allow growers to agree that their data can be used and passed to anybody.

“I’m not sure that people know that.

“There has been a suggestion that one of the ways of doing that is that as soon as somebody signs up to be on the WEP, in the very very fine print of the EULA (end user licence agreement) … hand up anybody who has ever read a EULA or just clicks agree?”

Mr Roberts said AWI in conducting the WSSR and developing the WEP did not have any ambition to “own the data.”

“What they would like to see is great cohesion and if what you are doing can feed into that for greater industry good and greater efficiencies we think that’s fantastic.”

Duality of purpose in the WEP

Mr Jones later told Sheep Central he believed there is a duality of purpose within the WEP.

“You are saying it is one thing, but you want it to be something else.

“You want it to be an online sale platform, you want to bypass the existing commercial infrastructure – now I think that that’s a folly, but also you can only do it if we all support it,” he said.

“That’s why I made the comment about the EULA, there is an amount of deception happening here, the fact that before the working group was finished and wrapped up they made media announcements and statements and all those sort of things.

“There is an element of it being pushed through.”

All sectors of the industry have to be competitive

Alluding to the WEP’s initial aim to reduce wool-selling costs and referring to his slide (click here) attributing 73 percent of wool supply chain costs to wool harvesting, Mr Jones said he was surprised how the (post-farm) wool supply sector was continually under assault from industry associations which “purport to support the industry”.

“I’m a bit sick of hearing about the fact that ‘oh you are all too expensive etcetera’, when you look at how much it costs to harvest the wool.

“We have to all be competitive, have to do it as cheap as we can, but it is an industry where there is an ability for everybody to make a living.”

WoolProducers of Australia senior vice-president and WEP steering group member Ed Storey agreed that the “numbers tell a story” in comparing the relative cost benefit of AWI investing in the WEP versus wool harvesting cost reduction.

But he said the great benefits of the portal will not necessarily be in any immediate wool-selling system cost savings.

“I think it is those other benefits that I think are the main reason for doing the WEP.

“I think the WEP does offer opportunities for innovation and playing a role in future proofing the industry,” he said.

“It will provide transparency which is always good in a marketplace, but again it will provide a role in preparing us, through an evolutionary process, to benefit from innovation and take advantage of technological improvements in the future in conjunction with what other groups are doing.”

“Auctionsplus might invest in their online trading platform and link that into the WEP its online wool trading into the WEP,” he said.

“AWEX may choose to link the live auction into the WEP and develop different products around that to facilitate other trades.

“The Riemann futures market and Southern Aurora Wool – the different people that offer forward products, if we aggregate all our data in a WEP and it is backed up by individual bale ID and technology is able to support logistics efficiencies by some of the things that AWH is doing, we can take advantage and get more liquidity into the forward markets, which has always been a problem,” Mr Storey said.

“None of these things are guaranteed but the Wool Exchange Portal will provide a platform for these types of innovations to be successful in the industry.”

He said the WEP offered a great opportunity for brokers — irrespective of the physical location of the wool, the wool grower or the selling centre — to “have a crack at selling much larger quantities of wool from a much larger pool of clients.”

“Competition and innovation will evolve through the WEP, the WEP most necessarily deliver massive savings in the first three months, that’s not what the WEP is about – the WEP is about facilitating innovation, transparency and competition and allowing the best scenarios and models to rise to the top of the pool and be the ones that growers adopt,” Mr Storey said.

“What it shouldn’t be about … once it is up and developed, and through its final development stages, AWI has to understand that it is a serious monopoly player in the industry and it is not its role to use the WEP as a Trojan horse for attacking a whole range of other institutions in the wool industry.

“Some of those institutions play a role in the quality assurance and reliability of the Australian wool clip and while AWI’s role in developing the portal should be a constructive and positive one for the industry, we still need to think about the governance of how it is going to be run in the long-term and how it fits in and drives innovation and change in the industry,” he said.

“They’ve got to understand not to abuse their market monopoly in the use of our levies.”

AWH is owned by one of Australia’s largest wool brokers Landmark and DP World Australia, Australia’s largest container terminal operator, which has terminals in Brisbane, Sydney, Fremantle and the Port of Melbourne. DP World Australia is a subsidiary of the UAE-owned DP World. Landmark is owned by the Canadian-based agricultural services and product company Agrium Inc.

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  • Edward Wymer August 21, 2017

    Mr Michael Jones’ comments all make sense; not so the other three gentlemen in this article.

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