In October 2010 PGG Wrightsons’ subsidiary Wool Partners International (WPI) issued a prospectus to form a Wool Partners Co-operative (WPC) taking half of the country’s strong wool clip. It would have been an exciting development in New Zealand’s Cooperative landscape.
But in February 2011, after multiple deadline extensions, WPI admitted defeat and the offer was withdrawn. WPI have indicated that another attempt is on the cards. What are their prospects?
WPI was formed in May 2008 to create a vertically integrated wool business with its own export sales and marketing function.
This involved deconsolidating PGG Wrightson’s former wool business, which had specialised in livestock auctions, wool processing and other wool related services, and selling it into Wool Partners International Ltd for a reported NZ$46million.
It also wrapped in Bloch & Behrens Wool (NZ), an international wool trading company, and Wools of New Zealand, a long-surviving industry good organisation whose responsibilities included international marketing.
WPI seemed to have all the right ingredients, yet it was not without challenges. Like many fully owned subsidiaries, WPI probably struggled for attention in the PPG Wrightson board room. It may also have found frustration with the many constraints and impositions that come with being part of a much larger corporate organisation.
This would be especially true of a subsidiary formed by the merger of even smaller, formerly independent parties. To cap this off, PPG Wrightson’s well-publicised financial difficulties undoubtedly crimped ambitions within the company.
Whatever the case, it was deemed sensible in 2010 to re-shape WPI as a farmer-owned cooperative.
The WPC prospectus ran into immediate criticism from the outside world, not least from the cooperative community. It seems to this author that two fundamental difficulties emerged. In the first instance, the level of disclosure in the prospectus was inadequate.
The most damaging issue was failing to explain reported losses of $5.8 million attributed to WPI in the 2009 and 2010 PGG Wrightson annual reports. This made it difficult for financial advisors to recommend the new co-operative.
The resulting delays probably stole momentum from the offer, and must eventually have been a contributing factor in its failure.
The second difficulty was with the wool producers themselves. The prospectus stipulated that shareholders were required to supply all of their Strong Wool to the Wool Partners Co-operative. “So what?” you may ask.
On the face of it this condition of membership isn’t unreasonable. If WPC performed financially then as a cooperative all the returns would flow back to the wool producers anyway. Even better, it would allow them to focus on the core business of farming.
The “so what” is that many sheep farmers think of themselves as traders. They invest energy in deciding when to take their stock to the sale yards, when to buy stock in, who is offering the best prices, what direction prices are taking, and so forth.
Many sheep farmers are members of more than one meat processing cooperative simply so they have this option. Unfortunately this behaviour does not breed a feeling of trust and mutuality between sheep farmers. Not surprisingly then, they feel the same way about their wool.
Ironically, it may turn out that wool producers would rather not “control their destiny beyond the farm gate” if it means sacrificing their right to choose whose truck drives through their farm gate.
WPI should come back with a new prospectus that addresses wool growers concerns. Certainly the first offer raised NZ$40 million even in these difficult times, and was hence only NZ$15 million short of the target.
A WPI restructure announced in March has also brought in new leadership, and new governors. The challenge before this new leadership is interesting. Convincing the 30% of wool growers who supported the first prospectus to come back to the table is probably the easy part.
The test for WPI will be convincing at least another 20% to give up their independent ways, and make an unequivocal commitment to standing together in a cooperative.●