Wool Equities, Primary Wool Coop in tie-up talks as they eye Fonterra success

Friday 13th December 2013

Wool Equities, which manufactures wool for its grower shareholders, and Primary Wool Cooperative, a farmer-owned joint venture with wool broker Elders, are in talks about merging to boost returns as they eye the success of dairy industry giant Fonterra Cooperative Group.

Wool Equities, with 9,500 farmer shareholders, and Primary Wool, owned by about 1,200 farmers, may already have many of the same shareholders and are looking at the benefits of uniting their businesses, said Wool Equities chairman Clifford Heath.

The two businesses are at opposite ends of the wool market as Primary Wool takes wool from farmers at the farm gate and onsells it, while Wool Equities buys scoured wool and converts it into yarn and garments through its spinning, weaving and knitting operations. The wool companies are eyeing the success of Fonterra which operates the full chain, buying milk from its farmer shareholders, then manufacturing and selling the processed products such as milk powder, cheese and yogurt.

"There's a need for us to come together and form something that looks like Fonterra," Heath said. "Wool is just an industrial ingredient. It's equivalent with the raw milk that goes to the tanker. If you start to process it into something further downstream then the reward to New Zealand is significantly better.

"If you can get that level of reward for the product at the border and then share that with the farmers, that is the ultimate objective and that is really the Fonterra model."

Wool, once New Zealand's largest export, has lagged price gains of other agricultural commodities in recent times in the face of industry fragmentation and increased competition from cheaper synthetic rivals.

Milton, Otago-based Wool Equities and Palmerston North-based Primary Wool expect to decide on whether to join up in the first quarter next year, Heath said. Wool Equities operates in the finer end of the wool market for garments, using merino, mid-micron and crossbred lamb's wool, whereas Primary Wool handles all types of wool.

Shares in Wool Equities, which trade on the stock exchange's NZAX index for smaller companies, last changed hands at 12 cents, having advanced 9.1 percent this year.

Similar talks have been underway this year in the meat industry, with the farmer-led Meat Industry Excellence group seeking to get farmer representatives on the boards of meat cooperatives Silver Fern Farms and Alliance Group to push for closer integration.

Previous talks with fellow industry group Wools of New Zealand hadn't progressed, Heath said.

BusinessDesk.co.nz

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