LSIRD NAPLIO CONFERENCE PAPERS

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Animal fibres - Adding value through producer co-operation

S.M. Andrews

SUMMARY

The Europe Union has a long history of fibre production; but it is only over recent years that efforts have been made to develop production operations for such fibres as cashmere, angora mohair, alpaca, llama and fine wool. The term adding value can be applied to any process in which the product is brought closer to the consumer. This is demonstrated in the fibre industries of France, Denmark and the UK in both tangible forms, (such as processing/knitting), and intangible forms, (such as transportation to the market-place and farm retailing). Through co-operative ventures, the performance of such activities permit the grower to exploit economies of scale and to effectively widen their net margins. However there are additional - often non-counted - costs that need to be brought into the equation, such as additional labour. If these factors were fully costed the additional margins may appear less attractive. Although collaborative activities permit such fibre opportunities to evolve in an otherwise economically non-viable environment, there is little evidence to suggest that European growers are able to fairly compete with the rest of the fine fibre producing nations to satisfy the market. It can be concluded that there is still a need for a closer identification of the market place, in order to design, produce and locate the right product types to exploit niche market opportunities.

INTRODUCTION

It is widely accepted that the majority of the UK agricultural community are engaged in some field of diversification. Motives for change differ markedly from profit maximisation to supply chain and management control. Many new channels of diversification have evolved over the past fifteen years - amongst which are alternative animal fibre enterprises.

The term diversification has been used and misused by most sectors of the agribusiness communities. It has been referred to, in its broadest sense as any business which generates additional income to the farm from activity outside the range of conventional crop and livestock enterprises, (Ilbery 1991), and more concisely to those enterprises taking place on predominantly agricultural - proprietal land which (a) are not based on the primary production of food and fibre and (b) fall outside the price support mechanism of the Common Agricultural Policy, (Slee 1986)

In order to pursue such an activity, which carries with it numerous risks, (Haines 1987), there is a requirement for careful planning in order to ensure such risks are minimised. These risks have been to some degree assessed by Ansoff (1988), who considered the opportunities in the market place according to two differentials: the market itself and the product. Altering these differentials creates different windows of opportunity, of which diversification - in its truest form - is perceived to be of highest risk, (see fig 1).

FIGURE ONE : Opportunities in the marketplace

Source: adapted from H.I.Ansoff (1988)

In a recent national survey of farm shop owners in the UK 146 respondents were asked to identify the key motives for setting up such an enterprise, (Andrews 1996). The majority of responses inferred that income generation was the principle factor. However, other responses included family employment, better utilisation of farm resources, challenge and fun. This begins to identify the multifactorial driving force behind diversification.

Many European producers have expressed concern regarding the discrepancy between the price the consumer pays for the product and the farm gate price - this is frequently referred to as the marketing margin. What is clear to see from Fig 2. is that this discrepancy has grown over time. This has been accounted for in a number of ways - for example - it is recognised that the consumer demands a greater choice in food purchase, that a greater proportion of the 'food bill' is for processed products, and that most Europeans are prepared to travel to a supermarket, (that would usually employ a sophisticated logistics system), to physically purchase the food. All of these activities add value to the food - bringing it closer to the consumer. In doing so, any of these activities effectively incur a cost which justifies the increasing marketing margin.

FIGURE TWO: The Marketing Margin

Source: adapted from R.L.Kohls (1990)

If the producer were able to add value to the product - be that tangible, (such as processing/knitting), or intangible, (such as transportation to the market-place), then their share of the margin will increase. This is the primary motive of the UK farm shop owner. However is this the case for all diversification activities and more specifically for the fibre industries?

Through a series of market oriented models, one can attempt to identify future opportunities for present and potential contributors to the European fibre pool, whilst highlighting areas of current strength and weakness. The importance of market focus and marketing planning in the fibre sector has been highlighted on many occasions, (Gallico 1994 and Watkins 1995).

THE CURRENT POTENTIAL FOR EUROPEAN FIBRES

There are many areas within the Europe Union with a long history of fibre production; but it is only over recent years that efforts have been made to develop production operations for such fibres as cashmere, angora mohair, alpaca, llama and fine wool. Many of these projects have been exclusive to a particular region or state, and few have since attempted to develop strategic and commercial alliances between such groups.

FIGURE THREE: The Management Of Fibre Production In Europe

Source: S.M. Andrews (1997)

The current relationships between interested parties, related to the European fibre producing groups, can be illustrated by examining the behaviour of three animal groups in the three main fibre producing European states: Denmark, France and the UK., (see fig 3). All three groups are represented in the three named states to a greater or lesser degree. The typical characteristics of the stronger groups would appear to be the employment of a high profile breed society and the collaboration of members to improve the marketability of the product

By controlling the supply chain, it is possible to avoid transfer of title regarding product ownership and, under such circumstances, the marketing margin remains with the producer, (or grower as many prefer to be called). Through co-operation, scale economies can be achieved permitting growers to effectively replace the roles of the intermediaries. Due to relatively low world prices, many European fibre enterprises are unable to generate sufficient margins from production alone. Through co-operative, value-added diversification, the total margin to the producer may be increased thus economically justifying the enterprise, (assuming market demand exists).

This final assumption holds the key to a successful venture. Even with state/EU support, breed societies and added value processing through co-operatives, a lack of market focus and consumer orientation will still limit the scope of any project. This is demonstrated in the French mohair and the Scottish cashmere ventures, both of which currently appear to be experiencing decline in membership and total output.

By contrast the Danish mohair producers appear to be exploiting new market opportunities and have been experiencing a growth in adopting growers. The key reasons for the success of this relatively new enterprise are the motivation and co-operation of a few individuals, who have demonstrated a determination and genuine faith in their new product. The fibre is being processed by a producer controlled initiative: Dansk Naturfiber (DNF). Current trends indicate that the national demand for Danish grown mohair products have completely outstripped supply.

Growers have received the benefit of state support; but this has had to be funded by the breeders themselves through the angora breed association. Together, the Mohair Society, the Danish Agricultural Advisory Centre and DNF have developed a simple, yet sophisticated, method of production and supply to the consumer, that is both cost effective and provides a viable return to the grower - subsidy free.

In its simplest form, the grower provides the fleece to the DNF fibre pool. It is then graded, cleaned and processed in bulk to form nearly two tonnes of yarn and woven products. The cost of this process is funded by the grower on a per kg basis, identified from a model developed at the Advisory Centre. The fibre is then returned to the grower as either blankets, socks or spun yarn, according to the needs of the grower.

It is then the responsibility of the grower to identify a consumer for the product. Since the development of the project, over 25 exclusive farm shops have evolved in a variety of forms serving a number of different types of consumer from the local knitter to the German tourist looking for the most exclusive of knitwear.

With the aid of a design group, a number of products exclusive to the DNF group are available, or if the consumers so wish, they can purchase the yarn and the design, and knit the garment themselves. It is the careful implementation of designs - of a clearly defined Scandinavian origin - that is seen to add value to a totally regional production and processing initiative.

The target consumer is the tourist - both Danes and Germans - who expect to pay more for a locally produced and designed quality garment. In this way, the Danish growers have identified a truly diversified window of opportunity for their garments - both in terms of new product/design development and in terms of niche market development.

The scheme of payment and production is also sufficiently flexible to suit a variety of production interests. The pricing structure permits growers to buy back more fibre from the DNF fibre pool than they produced. Therefore, by means of a simple pricing mechanism, a grower can opt to do no more than send his fibre to the pool and await the purchase from another grower. In return he will receive up to four times the world market price for his fibre. Alternatively a grower may elect to purchase more fibre from the pool that was supplied in order to satisfy the grower's retail needs.

THE FUTURE POTENTIAL FOR EUROPEAN FIBRES

In order to appropriately analyse the market opportunities for value-added fibre growers, a SWOT analysis is employed - demonstrating the internal environmental strengths and weakness of fibre growers and the external opportunities and threats facing the future European fibre producing industries. A general view of key factors within the fibre growing sectors are highlighted in the following broad analysis, (Dibb 1994):

Strengths

• Clearly, any factor which increases the margins of the producers is a strength. Co-operation to exploit economies of scale have, (in the case of UK mohair), lifted growers from a point of net enterprise loss to a point of modest profit.
• The small size of the individual sectors permit greater flexibility to changing consumer opportunities.
• The employment of niche, quality designs to compliment a quality product may well position the grower to exploit a regional competitive advantage.
• The greatest observed social strength of the majority of all European fibre growers is the dedicated, positive mental attitude towards the product, its origin and its quality. however, this sheer determination often deflects attention away from the consumer whilst maintaining a driving focus on the product.

Weaknesses

These can best be described through five observations -

• Sectors are product not market driven
• Most growers have limited and insufficient access to market information
• Horizontal communication between growers is often limited
• The size of many sectors is too small to maximise scale economies
• There is insufficient state/private support for the European grower

Opportunities

• Greater co-operation within breed groups will increase efficiencies whilst scope also exists for new links and stronger links between different breed groups / member states.
• There may be many new opportunities to develop niche positions. Some are currently being tested in the UK.
• A strong communicating body with a quality product needs to be aligned with strong design development
• A stronger focus on the consumer market trends will provide new market-driven opportunities

Threats

• The greatest threat are the larger fibre producing countries with a long history of quality fibre production. Any increase in supply from the EU, may well evoke a competitive response from such third countries.
• Production and processing sectors are shifting - for example - the Chinese are limiting the supply of Cashmere onto the World market to encourage a stronger focus on home processing. This may shift the processing centre from Northern Europe and thus create potential trade barriers for European producers.
• The consumer is a dynamic concept - changing consumer tastes have led to a cyclical pattern of supply and demand in the fibre trade which can destabilise European production.
  

CONCLUSION

Today, through resilience, entrepreneurship and faith in a quality value-added product with unique characteristics, the Danish mohair growers are experiencing a steady growth in their industry, contrasting the economic climate of the UK and French mohair sectors. This demonstrates the importance of leadership and communication of initiatives to all parties. It is essential for the survival of any small group, that there is a clearly planned, designed, executed and focused marketing plan - that is adopted and employed by all parties.

Given the relatively small size of the European sectors in comparison to the larger fibre producing nations such as South Africa (mohair), China (cashmere), and South America (lama fibre), the greater opportunity may be exploited through strong European integration of value-added, co-operative programmes. However, this must be cautiously pursued so as not to diminish the regional specialisms that have successfully evolved in certain niche areas.

It can be concluded that there is yet still a need for a closer identification of the market place, in order to design and produce the right type of product, to the right location at the right price, to meet the wants and needs of the target consumer. Furthermore there is a need for stronger co-operation in order to truly exploit the economic opportunities of added value diversification.

REFERENCES

Andrews, S.M. & Williams, R.A. (1996) Trends in farm retailing. Proceedings of the FRA/NFAN Annual Conference, Newbury, Berkshire.

Andrews, S.M. (1997) The establishment and marketing of alternative animal fibre enterprises. The Farmers Club Bursury Award 1996

Ansoff, H.I. (1988) The New Corporate Strategy

Dibb, S., Simkin, L., Pride, W.M. & Ferrell, O.C. (1994) Marketing Concepts And Strategies (2nd European Edition) : 569-570 Houghton Mifflin, Boston.

Gallico, L. (1994) The importance of wool and speciality fibre for European rural development. Personal Communication

Haines, M. & Davies, R (1987) Diversifying The Farm Business. BSP Professional Books, Oxford

Ilbery, B.W. (1991) Farm diversification as an adjustment strategy on the urbun fringe of the West Midlands. Journal of Rural Studies 7 (3): 207-218

Kohl, R.L. & Uhl, J.N. (1990) The Marketing Of Agricultural Products: 184-190 Maxwell Macmillan International, New York.

Slee, B. (1987) Alternative Farm Enterprises. Farming Press.

Watkins, P. (1995) The Changing Market For Cashmere.
Personal Communication

S.M. Andrews
Royal Agricultural College,
Cirencester,
Gloucestershire,
GL7 6JS. UK.