PGG Wrightson committed to Velconz

Craig Osborne of PGG Wrightson (left) and Ponty von Dadelszen of the Velconz Working Group at the Deer Industry Conference Plan to have a new structure operational for the new season

The new business will enable producers to “take a step up the supply chain” says working group chairman, Ponty von Dadelszen of Hawkes Bay, who unveiled progress to date at the DINZ FGM, held in Hamilton in May. 
The Working Group has been developing the concept with rural services company PGG Wrightson, following a remit at last year’s conference where deer farmers sought a new selling option for producers that would generate more management and better returns. “They want transparency in selling and governance,” says von Dadelszen. 

Because of the influence of small suppliers, von Dadelszen says, the focus has been on developing a structure that will enable aggregation of product – to achieve economies of scale and “a measure of influence”. 
The working group and PGG Wrightson propose to set up a limited liability company, with the working title “New Co”, that would be jointly owned by PGG Wrightson and Velconz Holdings Ltd (VHL). VHL, in turn, will be owned by velvet suppliers. New Co will charge fees “at similar levels to present”. It will have five directors, one provided by each shareholder and three by agreement, and a small executive staff. It will be capitalised via profit retention, cash and contra. 

Suppliers to New Co will gain ownership shares of VHL in proportion to the quantity supplied.  
Producers will therefore have the choice of dealing with PGG Wrightson through New Co (and not directly), or if they sell velvet to a road buyer, it might still go through New Co or directly to an overseas buyer. If the road buyer sells through New Co, they get the VHL shares, not the farmer. 

Von Dadelszen reports they’re now working on negotiating a service level agreement, including defining “where New Co starts and PGG Wrightson stops”. 
They expect to use the pool system at least for the first year, but ultimately they don’t believe an auction is the best way to capture the value of a niche product, he says. 

 Farmers do need to be prepared to be involved in the supply chain beyond the farm gate in order to get better stability and returns, Craig Osborne, group manager strategy for PGG Wrightson told the FGM delegates. 
“We think Velconz is the right way forward for the New Zealand velvet industry,” he says. “We’re absolutely committed to Velconz. We want to be a part of it.” 

He says in taking this position, the company has been guided by its principle that, “What’s good for farmers is good for Wrightson. However, he warned that “[the Velconz initiative] will only work if it gets a high level of producer support”. 

Osborne says that where there is no evidence of excessive profit-taking at any point of an agricultural product supply chain and yet there are low returns to producers, then the finger should be pointed at the market structures.
“Improving structures requires leadership from within the industry and co-ordination,” he says. “Leaders need to see beyond the current situation and look for longer term gain.” 
“Don’t risk your investment on-farm by failing to invest in the rest of the supply chain,” he urged. “That’s like building a factory and not talking about how you will market the product.” He estimates the dairy industry ratio of investment would be about 80:20. 

In part, the level of investment relates to “uniqueness” in the world market. “For example, for beef, there’s less need for New Zealand to make market investment, compared to lamb where New Zealand represents 70% of the global market. With velvet, New Zealand has the number one position and a large market share, so the need is relatively high.” 

Osborne highlights one dilemma: “If someone provides leadership, everyone benefits, even those who are not involved. In the case of Velconz, unless enough farmers are involved, the benefits won’t come. We think 50–60% should be enough to establish leadership.” 

Von Dadelszen agrees that the key is “patronage”. Once the key agreements have been approved by the Velconz Working Group and the PGG Wrightson executive and board, they’ll be on the road, seeking to “russle up support and commitment”.

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