Working in association with The Merino Company, Traprock producer Rick Goodrich (right) has spent the past decade identifying a supply chain system that satisfies customers’ needs for "a good merino experience" as well as producers’ needs for a respectable return on investment.

Mr Goodrich was one of three speakers canvassing options for lifting the profitability and turnover of sheep production during a recent telebridge session run by the Leading Sheep Central West regional committee.

The other speakers were Johnathon Tully from Elders Rural Bank, and Sandy McEachern from Holmes and Sackett who, together with Mr Goodrich, provided 90 minutes of food for thought in an accessible, cost-effective and time-efficient session.

Although the telebridge delivery method took the speakers out of their comfort zone, participants said the non face-to-face session meant they concentrated on the messages coming down the line rather than on visual distractions.

Leading the session, Mr Goodrich said: "My opinion is that people’s image in today’s society is associated with what they do in their leisure time so that’s why The Merino Company is targeting active, outdoor, lightweight clothing markets in which wool has not traditionally been very successful in the past."

Being an international sailor as well as a wool producer and chairman of Traprock Wool Association, Mr Goodrich tested his product with the Wild Oats crew during the Sydney to Hobart yacht race and believes wool has a great place in such markets.

"We use a term called the merino experience – if people have a poor merino experience then it reflects on the entire industry. That’s why we are ruthless about the wools we select, particularly for next to skin wear, because they need to be fit for purpose and provide guaranteed comfort," Mr Goodrich said.

"We have been making contacts and seeking designs that are acceptable for the European climate in the smart casual and sports area."

Mr Goodrich said The Merino Company has been doing the rounds of trade fairs, such as Munich in Germany, to discuss the customers’ program for merino in the luxury and active wear markets.

"We start with the customer, find out what the job for merino wool is then go back to the farm and work out which sheep in the mob are producing wool that is preferable for that batch."

"Our goal is to have a shearing shed with garments up on the wall and the people involved striving to allocate the best wool to go into those garments."

"We need to understand what we do on the farm and how it represents the comfort factor in the garment. That’s why we only take wool with a known CV (this represents the spread of micron in any given sheep, bale or batch of wool) and we micron test each fleece."

"We have more commitment from our supply chain partners than ever before and it is surprising how many people really want contact with the grower."

"As is the case with the New Zealand Merino model, the grower is an essential part of the wool chain and growers need to be treated as business people, not as ‘cockies’ which is how the auction system tends to pigeonhole growers."

"Our goal is to have no change of ownership in the system because that keeps the customer cost-effective when wool presents to the consumer."

"Our supply chain partners have the ability to handle, marshal and transform wool after we identify and source the wool for the customer. That is a new positive step, and that is where we are headed."

Mr Goodrich said the commitment of The Merino Company is to leverage the price to be above 60 and ultimately 70-75 percentile returns to grower (this equates to 70-75 percent of the highest price over the past 10 years).

"Wool needs to be treated as a specialty so that growers get enough income to allow them to sustainably produce the quality of wools we require.

The Merino Company is sourcing wool from around Australia, although he cautioned that it would be difficult to put western Queensland wools of 20-21 micron types into next to skin wear.

Asked about the European’s current attitude to mulesing, Mr Goodrich said it certainly does impact on their purchasing decision but doesn’t appear to affect it much.

"We spoke to about 400 people and a percentage of them raised it. But when we explained that mulesing was a tool that has served us well in the past and we have a strategy to minimise it into the future then they showed more understanding about why it was necessary."

"There are plenty of opportunities out there. My opinion is that China is a commodity-based market which has no relationship back to the growers, whereas the Europeans have a great affinity with the growers and managing the land for sustainability."

The second speaker in the telebridge session on options to lift profitability and turnover, Johnathon Tully from Elders Rural Bank, said bankers like to see consistency of turnover during the year because turnover is an indication of risk.

"Clients with a consistency of turnover are exposed to the full fluctuations of the market, rather than being exposed to a small part of the market if they sell their entire wool clip at one time," Mr Tully said.

"When assessing overdrafts, bulk cash flow and total fluctuations in the account are important considerations."

"Businesses with higher cash flow generally have higher profitability over the long term and have more opportunity to make new property or stock purchases."

Meanwhile, Holmes and Sackett financial consultant Sandy McEachern said producers looking to improve their profitability needed to analyse what they are doing and set about trying to improve their operations.

"Producers need to look for continual incremental gains. It is a case of evolution, not revolution that will improve profitability over time," Mr McEachern said.

He said only 20 percent of Australian farms are operating at their full potential and if they are not making a profit then radical change is needed. This may include: changing breeding direction (eg shift into meat sheep); changing breeds altogether; getting into beef or cropping; changing governance of the industry.

"These producers have to decide whether to swap enterprise or improve the enterprise they are in. Chasing fads can be expensive and there is often no guarantee of superior profits," Mr McEachern said.

But the vast majority (80 percent) of Australian farms are not operating to their potential and therefore most producers have opportunities to improve productivity without radical change.

Common opportunities for refinement are:

1. Costs of production. The margin between costs and prices determines profitability. Using an investment approach, producers need to maximise profit from every dollar spent.

2. Stocking rate. Stocking rate is the main driver to profitability, therefore getting the rate right is the single most important thing that producers can do to lift profitability. Properties may be under or over stocked and the rate needs to be flexible enough to deal with seasonal changes.

3. Market systems and flock structure. Producers need to identify their target markets and have systems set up for that. They may choose to have more or less ewes in the system because ewes are harder to manage and require lower stocking rates. Wool producers need to weigh up the different margins of producing 21 micron compared with 17 micron wool. If the lower microns drive up the cost of production, producers need to assess whether it is worth it or not. Similarly if producing meat sheep, producers need to identify what weight and dates they should sell at to maximise returns. Take a long-term approach and avoid chasing short-term market signals and fads.

4. Genetics. Producers want superior genetics in their flock and it is the rams that drive it – therefore you can’t spend enough on good rams. Some bloodlines are superior in terms of the combination of fibre diameter and fleece weight. Some can be 20 percent better than others at the gross margin level and can translate into 100 percent increase in profitability. However choosing good genetics is not easy in merinos because they are not always transparent.

Although it provoked some discussion, Mr McEachern said producers need to get used to per hectare discussions because per head information made it hard to compare options.

"It is $/ha, kg wool/ha, lambs weaned/ha rather than wool cut/head for number of lambs weaned/ewe which gives you a direct comparison between ventures."

In summing up the session, Leading Sheep Central West regional coordinator Jenny Keogh (right) said participants and presenters found the telebridge session an excellent and efficient way to access information.

It was suggested that lunchtime sessions might enable more producers to participate, that reminders might be required for those who register but then forget to phone into the session, and that digitally recording the session would enable ongoing access to the information via the Leading Sheep website www.wool.com.au/leadingsheep.