Com Com's 'Preliminary View' extraordinary – WSI

18 Apr '11

3 min read

New Zealand Wool Services International (WSI) Chairman Derek Kirke said he was mystified that the Commerce Commission's preliminary view indicated it favoured the creation of a monopoly in the country's wool scouring industry.

“This is only a preliminary view, and step one of the process, but it is extraordinary that they have been persuaded that a lessening of competition would be in the public interest. The decision is quite contrary to previous Commerce Commission decisions which have required a very high level of proof from the applicant before authorisation for a monopoly is given.

“Cavalier is spending a lot of money on this application – because the company stands to make a lot of money with a monopoly control of the industry”, Mr Kirke said.

It is public knowledge that there has been a high level of interest from a number of parties in the 'Hubbard shares' (the WSI shares on offer by the receivers of the companies in the hands of the South Canterbury Finance receivers). Mr Kirke said a number of those parties would bring significant strength and diversity to the industry, while Cavalier Wool Holdings' (CWH) application for authorisation to the Commerce Commission to acquire WSI's two wool scours would allow a CWH monopoly over the New Zealand wool scouring industry.

The Commerce Commission is accepting submissions on its preliminary view until 27 April, before a conference is held in Wellington on 5 May, and a final decision made by 31 May.

Mr Kirke said this preliminary view would be a wake-up call and likely trigger a large number of submissions from the wool industry in the next round of deliberations. He also reassured the staff, customers and shareholders of WSI that this is by no means a final determination.

“A number of the Commerce Commission findings are helpful. They dismissed the quality benefits claimed by Cavalier as well as their claim that the threat of new scours being built would prevent price gouging by a monopoly wool scourer. They also dismissed the claim by Cavalier, and some of our competitors, that WSI is a weak seller, and the proposal of a super store as a likely benefit.

“However in our view they have substantially overstated the threat of competition from Chinese wool scourers as a likely restraint against monopolistic pricing practices.

“WSI's vertically integrated business model is the best in the industry and there are a lot of sensible people who understand that less competition means higher costs, and that a Cavalier monopoly, and its ramifications, would be detrimental to the New Zealand wool industry. If this interim decision is taken through to a final determination there will be major additional costs to be borne by farmers and manufacturers,” Mr Kirke said.

WSI currently exports over 45 percent of all New Zealand's coarse wool and is continuing to expand its market share in over 30 countries worldwide.

New Zealand Wool Services International (WSI)