A crossroads for velvet

Velexco director Graeme Ramshaw of Alpine Deer Group with Velexco?s general manager Ross Chambers

When the co-operative was formed, the primary motive was to build selling power in the market and retain profits for the producer.
To them, it?s mystifying that in spite of Velexco achieving prices that averaged 12% more than the pool average in the 2005?2006 season, it now looks as if many farmers will default to a Velconz joint venture with pools operator PGG Wrightson ? the latter a public company expected to return profits to anonymous outside investors.
And though many small-scale producers have described the $5000 it costs to join Velexco as prohibitive, it now appears likely that if they decide to support Velconz, they will have to tick a box approving the retention of some returns.

The public discussion session was chaired by Edmund Noonan, of the Canterbury branch of the New Zealand Deer Farmers Association, and opened by Velexco member John Scurr.
Scurr put on his other hat as Deer Industry NZ chairman and sped through a familiar catalogue of DINZ marketing strategies and outlined the mandate from the industry for DINZ to investigate better supply management.
Results of industry consultation, including a survey posted out in December by the two groups developing the Velconz initiative, showed the majority of producers favoured a single sales channel for velvet and supported the establishment of a jointly owned business in which farmers would have some governance over the pools system, he says.

?This initiative is intended to assist ? not displace ? existing companies. We respect the work Velexco has done, but it does not have the critical mass we need.?
Velexco chairman James Guild followed, with a list of ?inconvenient truths? facing velvet farmers. The industry operates mainly in a rough, tough, highly protectionist Korean market, and marketing effort is wasted where supply is not managed and many producers are weak sellers, he says. After 30 years of diminishing returns and wildly fluctuating prices, the industry needs initiators to achieve change, and Velexco has been in that role for eight years: the only group of producers to put their shoulders to the wheel.

But each group can only go so far, and current good prices are an aberration, he warns. ?Let?s not get used to them. Larger growers must decide if they can afford to be passive. The velvet sector is characterised by politics, distrust, negativity and an attachment to tradition, but it also has a responsibility to present growers with a united and viable business proposition.?
Other Velexco members were just as vocal. As one farmer put it, he had joined up to avoid the ?empty the freezers? pools mentality. As a co-operative that had the courage to say ?No? to a poor price, Velexco would certainly have had more shareholders and more critical mass if Velconz was not in the picture.

The chairman of the Velconz working group, Ponty von Dadelszen was there and showed spirit in the Velexco bearpit. ?We are still jumping the first hurdle, starting small, using carrots not sticks, but who knows what will happen as we include other partners and start holding hands?? he said during question time. ?And if this doesn?t get going, with the buying power of road buyers, you will be eaten to death by the competition.?
Velexco itself took some hard knocks from Adeerco?s Barry Cuttance, fresh from the US where he has been marketing his Superflex velvet supplements for pets. He contends that by concentrating on the Korean market, the industry is failing to capitalise on alternative markets as well as millions of dollars spent in research.

Welcoming the ?robust debate?, Velexco director Tom Williams said it was important to try to allay the perception that industry sectors were playing in different pens. ?I haven?t yet heard a cogent answer as to how Velconz will operate differently from Velexco, and it?s time we all got together and did something right.?

When Scurr protested that Velexco had never been excluded, Guild responded that ?there has been a freezing out by DINZ?.
Summing up was left to experienced agricultural commentator Professor Keith Woodford of Lincoln University. His conclusion was there?s no easy way, but now is the time, while prices are relatively healthy, to make change.
The key issue velvet producers face is a dangerous fluctuation in volumes, in a market climate that is incredibly price sensitive, he says. One thing is clear: it doesn?t matter who it is, Velconz, Velexco or the pools, as long as volumes go up and down, you face an impossible marketing task.?

?Even though returns next year may remain quite good, the fact is that nothing has changed. As farmers push up stag numbers, those actions will be what destroys the market in the future, and there will be another velvet crash. Stuff up the supply, and this industry will stuff up the market.?

Despite the obvious tensions within the industry, it?s essential that all sectors work together, he says. ?If Velconz gets off the ground, there may still be a very important role for Velexco, which already has a profile in the market. One of the burning questions you face is whether you can find people within the Korean industry who want to work in a supply chain system where there is guaranteed stability of relationships.?

Echoing comments by others recently, Velexco leaders say the up-turn in prices during the 2006/2007 year, while extremely welcome, runs the risk of engendering a false sense of profitability and stability while the fundamental problems remain.

Velexco chairman James Guild and general manager Ross Chambers both addressed members of the Velexco co-operative at their AGM.

At balance date, June 30 2006, they report that Velexco had 78 shareholders, who supplied 51,383 kg of green velvet. The total now stands at 85. Velexco achieved prices that averaged 12% more than the pool average in the 2005?2006 season, continuing its record of consistently achieving at least 10% more. This year, the company is moving to a 30 September balance date to more accurately reflect the trading year.
From Velexco?s perspective, they say, returns to velvet producers that are below their costs of production are largely caused by industry ill-discipline and wasted opportunities.

Confusion and conjecture with regard to velvet sector structures have affected share uptake, and the company has had to work hard to sustain supply loyalty from some shareholders, they reported. But the current season has seen a further shift towards private treaty sales as Velexco establishes more durable relationships with buyers.

After the departure from Korea of Velexco development manager Lewis Patterson, the company?s presence in Seoul will be maintained through an agency agreement with David Kim.
A contract for the supply of services from Tasman Velvet for the 2006/07 year has given Velexco a higher level of independence and flexibility in its collection network and sales options, says the report.

?But while the industry continues to struggle with the changes necessary for sustainable growth, and while New Zealand?s velvet sector remains without a uniting strategy and velvet growers continue to be divided and confused, producers will remain commercially impotent in the supply chain.?
? Lyn McKinnon

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