Devold has set the pricing for its new four-year wool contracts by asking growers directly what it costs them to produce a kilogram of wool, rather than working off spot market rates.

Devold New Zealand general manager Craig Smith says the contracts are designed around the company’s vertically integrated operation, which turns raw wool into finished garments at its own plant in Lithuania.

“If that machinery has no wool going through, it’s just a big bit of metal,” he says.

“We need to make sure that we have a genuine supply of wool coming, not only now, but for the next three, four years ahead.

“For us as a company, it’s hugely important that we go right back to where the wool’s growing, sit down with the growers and say, ‘Right, what does it cost you guys to produce a kilogram of wool?'”

Smith then took that figure back to Devold’s head office and worked through a price that removes the spot market from the equation.

“With a long-term forward contract, everyone knows what they have to pay for the wool.

“They know the quality of the wool, we know the quality of the wool that we’re getting, and we know the volumes of wool that we’re getting.”

The contracts, worth $30/kg clean for 18.5 micron wool, also fix quality specifications beyond micron count.

“It’s also got to be a length criterion, and a vegetable matter (VM) specification, and a fibre strength, which we call NKT, or Newtons per kilotex (N/ktex).

“We’ve got a minimum of 38 to make sure that our consumers have the best experience ever when they put on one of our garments.”

Smith says the mill’s output has increased in recent months.

“Two months ago, our factory was doing roughly around 40,000 garments a week.

“We had a production meeting on Tuesday night with the mill, and they’re now doing 51,000 garments a week, so where do we get this extra wool from?”

He says the process behind the contracts mattered as much as the number.

“One of the big things about this is the price, but it’s the way we went about it; we didn’t just say, ‘Here’s your contract price.’

“I’ve been in the wool industry for 30-odd years, and I’ve never seen that model of doing this and presenting those contracts in such a way.

“That’s exciting to me.”

CountryWide CONNECT with Andy Thompson & Sarah Perriam-Lampp is our daily rural show livestreamed from 11am-1pm. Visit country-wide.co.nz on how to watch/listen or download the CountryWide CONNECT mobile app, available on Apple iOS and Android.