3 May 2012

Long term contracts help merino farmers in economic storm

9:48 am on 3 May 2012

Fine wool marketing company New Zealand Merino says the long term contracts are helping protect many of its wool suppliers from commodity price volatility.

Wool prices have fallen after their rapid rise last year, under pressure from economic recession in markets such as Europe and an unfavourable exchange rate.

New Zealand Merino chief executive John Brackenridge says that's hit the commodity end of the fine wool market as well.

However he says prices and demand are holding up in more specialised areas such as outdoor clothing where the company operates long-term supply contracts between growers and leading retail brands.

Mr Brackenridge says growers have about $100 million worth of longer term contracts from these brand partners which are providing some certainty and stability to their businesses.

He says wool has found its niche in the active outdoors market, with companies like Icebreaker, SmartWool and Ibex.

There has been significant increase in consumer demand as these brands gain dominance and the companies have significantly increased their long term pricing to the growers.

Mr Brackenridge says there was a record attendance of more than 500 at this week's New Zealand Merino Stampede conference in Christchurch.

He says delegates discussed environmental and market issues, long term stability on pricing and how to build on the collaboration between farmers, the company and its brand partners.

He says an interesting question raised was the idea of when to cooperate and when to compete.

"There is the knowledge that if certain brands can compete at some level but then collaborate at other levels to help grow the overall category, then they'll all be better off", he says.