Making cashmere attractive to investors

Transcription

1 Making cashmere attractive to investors A report for the Rural Industries Research and Development Corporation by S J Chaffey & B A McGregor June 2004 RIRDC Publication No 04/097 RIRDC Project No 205A

2 2004 Rural Industries Research and Development Corporation. All rights reserved. ISBN ISSN Making cashmere attractive to investors Publication No. 04/065 Project No. DAV 205A The views expressed and the conclusions reached in this publication are those of the authors and not necessarily those of persons consulted. RIRDC shall not be responsible in any way whatsoever to any person who relies in whole or in part on the contents of this report. This publication may be of assistance to you but the State of Victoria and its employees do not guarantee that the publication is without flaw of any kind or is wholly appropriate for your particular purposes and therefore disclaims all liability for any error, loss or other consequence which may arise from you relying on any information in this publication. This publication is copyright. However, RIRDC encourages wide dissemination of its research, providing the Corporation is clearly acknowledged. For any other enquiries concerning reproduction, contact the Publications Manager on phone Researcher Contact Details Stephen Chaffey PO Box 3204 Albury NSW 2640 Phone: sjchaffey@bigpond.com Dr. Bruce McGregor, Department of Primary Industries, Attwood, Victoria, Phone: Fax: bruce.mcgregor@dpi.vic.gov.au In submitting this report, the researcher has agreed to RIRDC publishing this material in its edited form. RIRDC Contact Details Rural Industries Research and Development Corporation Level 1, AMA House 42 Macquarie Street BARTON ACT 2600 PO Box 4776 KINGSTON ACT 2604 Phone: Fax: rirdc@rirdc.gov.au Website: Published in June 2004 Printed on environmentally friendly paper by Canprint ii

3 Foreword The cashmere industry is an established small industry exporting rare natural fibre for use in luxury textiles. The long-term viability and sustainability is threatened by low total production and loss of breeding stock. This is leading to reduced capacity of goat producers to maintain supply and reduce overhead costs along the supply chain. The cashmere industry wishes to expand and needs targeted activities to encourage further production by commercial farmers. The key areas investigated in this report were: The views of cashmere industry personnel, both current and retired; The views of potential participants in the cashmere industry; and The identification of actions to improve the effectiveness of industry recruitment and maintenance of existing participants in the cashmere industry. This project was funded mainly from industry levies and funds provided by the Federal Government. The Specialised Rural Industries Program of the Victorian Department of Primary Industries also provided funding. This report, a new addition to RIRDC s diverse range of over 1000 research publications, forms part of our Rare Natural Fibres R&D program, which aims to facilitate the development of new and established industries based on rare natural fibres. Most of our publications are available for viewing, downloading or purchasing online through our website: downloads at purchases at Simon Hearn Managing Director Rural Industries Research and Development Corporation iii

4 Acknowledgments The Rural Industries Research and Development Corporation and the Specialised Rural Industries Program of the Victorian Department of Primary Industries funded this project. Many people contributed to the study and in particular we thank office bearers of the Australian Cashmere Marketing Corporation, Australian Cashmere Growers Association and the Goat Industry Council of Australia. We also thank the participants who responded to interviews and provided their views and experiences of the cashmere industry. Abbreviations ACMC Australian Cashmere Marketing Corporation ACGA Australian Cashmere Growers Association APVMA Australian Pesticides and Veterinary Medicines Association DSE Dry sheep equivalent GICA - Goat Industry Council of Australia RIRDC Rural Industries Research and Development Corporation IRR Internal rate of return NPV Net present value RIRDC Rural Industries Research and Development Corporation ROI Return on investment About the authors Mr. Stephen Chaffey is a management consultant who specialises in systems analysis with a particular focus on empowering people to develop sound future strategies. Dr. Bruce McGregor is a Senior Research Scientist who has specialised in livestock systems, product quality and industry development with emphasis on new livestock systems. iv

5 Contents FOREWORD... III ACKNOWLEDGMENTS...IV ABBREVIATIONS...IV ABOUT THE AUTHORS...IV LIST OF TABLES...VI LIST OF FIGURES...VII EXECUTIVE SUMMARY...VIII 1. INTRODUCTION Objectives Stakeholders and satisfaction orientation Methodology and scope Demographics of telephone interviewees RESULTS OF SURVEYS Targeted interviews with people internal and external to the cashmere industry Focus group findings Evaluation of information about the cashmere industry DISCUSSION & IMPLICATIONS Potential origins of growth Review of the diversification decision process Identifying features, advantages and benefits Survey results and industry development Target market for growth Possible growth from more cashmere enterprises Possible growth potential from harvesting feral goat cashmere Focal points for industry growth Alternative management of the diversification decision making process Creating a story about cashmere with real benefits Overcoming resistance to cashmere Increasing the visibility of the enterprise and industry Streamline the supply chain RECOMMENDATIONS Strategies Programs APPENDICES Compatibility check list Interview questions and responses REFERENCES v

6 List of Tables Table 1: Stakeholders and views of cashmere industry success...2 Table 2: Origins of diversification information...7 Table 3: Advantages suggested by people unrelated to the cashmere industry...12 Table 4: Features and benefits related to enterprise profit...14 Table 5: Features and benefits related to animal handling...14 Table 6: Features and benefits related to pasture & weed management...15 Table 7: Features and benefits related to the enterprise compatibility to a farm system...15 Table 8: Features and benefits related to the broader industry...15 Table 9: Analysis of the cashmere industry s information products...16 Table 10: Cashmere industry growth pathways...18 Table 11: Examples of reason as a key influence strategy (modified after Carlopio et al 1997)...20 Table 12: Examples of possible feature advantage benefit statements (adapted from Buzzotta 1982)...21 Table 13: Estimated number of feral goats processed with skin on (AQIS 2002) and income per goat assuming cashmere is valued at $80/kg...25 Table 14: Estimated number of feral goats harvested with skin off (AQIS 2002) and income per goat assuming cashmere is valued at $80/kg...25 Table 15: Features, advantages and benefits for the cashmere enterprise...28 Table 16: Possible ways to manage objections...29 Table 17: Compatibility checklist to be completed by respondent...34 vi

7 List of Figures Figure 1: Compatibility issues by people operating a cashmere enterprise...6 Figure 2: Comparing perceptions of the importance of enterprise compatibility by people with and without experience of a cashmere enterprise...6 Figure 3: Views on feasibility, comparative advantage and trust in information by people experienced in the cashmere enterprise...8 Figure 4: Views on feasibility, comparative advantage and trust in information by people unrelated to the cashmere industry...9 Figure 5: Intentions of herd size build up over 10 years based on the average response of 16 respondents...13 Figure 6: The consumer choice process...18 Figure 7: A learning process suggested by Stanfield (1998) and Bennett (1975)...18 Figure 8: A process underpinning decision making for diversification...19 Figure 9: A casual loop diagram illustrating the connection between important drivers of profit and confidence in the cashmere enterprise...23 Figure 10: Possible industry growth given a net gain to the industry of 10 enterprises per year for 10 years and each becoming a 300 breeding female capacity enterprise...24 Figure 11: An outline of areas where improvement can occur that leads to more informed decisions and confidence to accept or reject the cashmere enterprise...26 Figure 12: Current and proposed diversification decision process...27 Figure 13: Creating positive feedback in the cashmere industry...31 Figure 14: An approximation of the current process of the cashmere supply chain...31 Figure 15: Financial motives...36 Figure 16: Non-financial motives...36 Figure 17: Views on feasibility, comparative advantage and trust in information by people experienced in the cashmere enterprise...39 Figure 18: Views on feasibility, comparative advantage and trust in information by people unrelated to the cashmere industry...39 vii

8 Executive Summary This study has been approached from the perspective that making the cashmere enterprise more attractive to potential investors is a critical pathway to growth in the industry. Growth is defined as more volumes of cashmere moving through Australian supply chains. Growth in the cashmere industry could begin to occur rapidly if there was a doubling in the price of cashmere. While this may be possible over the long term, given historic changes in demand in the textile fashion industry, it is the type of growth that is likely to attract opportunists into the cashmere industry who are the first to abandon it when prices shift down again. This paper suggests the industry has the opportunity to better present its information and control the decision making process so that it can attract people who are likely to make a significant contribution to the medium and long term success of the industry. Substantial growth in cashmere production could come from either more people establishing large-scale enterprises on highly compatible farm systems in highly suitable geographical areas in the Australian landscape and / or harvesting the cashmere from feral goats. Capturing the cashmere that exists on the backs of feral goats currently being harvested across Australia, if feasible, could produce from 3,000 to 8,000 kilograms to a value A$200,000 to A$600,000. The product could be captured at either the farm gate or the abattoir. Attracting 10 people each year for the next ten years with a high compatibility rating for cashmere production and who are willing and capable of building and sustaining a breeding female population of 300 or more animals, is likely to contribute 10,000 kilograms of cashmere and A$900,000 to the industry by These people will judge the cashmere enterprise based on its profitability and the extent of satisfaction they derive from the enterprise. Appealing to other motives will fail. These people would make their investment decision based on the compatibility of the enterprise to their farm system, the technical, financial and market feasibility of the enterprise and its comparative advantage with other possible courses of action. They are likely to be sceptical of information coming from within the industry that is not sufficiently supported by fact. Despite this they will form their opinions based on their own experiences, opinions of other farmers they respect and people that they regard as experts. They will be particularly sceptical of what they might regard as a fringe industry run by people who do not farm in ways similar to them or live in environments in which they farm. Language or media that is not consistent with the language they are familiar with from other mainstream industries such as wool, lamb and beef will not positively influence their opinions. The cashmere industry has inefficiencies that make it less appealing to some people. Slow payment for the cashmere product, a supply chain that appears too long and what appears to be a marginally profitable proposition on today s dollars make the task of convincing investment in cashmere enterprise a difficult one. The cashmere industry has a wide range of information generated over many years ranging from introductory material to scientific reports. The current information packages offered by the industry to people inquiring about the enterprise are not sufficient for decision-making by people operating commercially large-scale farm businesses. The information assumes people are capable and willing to invest the time in finding sufficient information to make informed decisions about the enterprise. Identifying the key features of the enterprise, discovering benefits and working through the facts and fictions of the many objections they encounter about the goats is a time consuming task that many people would not embark upon. viii

9 The following specific recommendations are made. Gather as much existing information on the industry and repackage it to enable people external to the industry to assess their compatibility to the cashmere enterprise quickly. Establish a financial feasibility model. Build in current and future benchmarking and financial data that exists in the industry that then allows people internal and external to the industry to test and discover the enterprise feasibility under a wide range of sensitivities and scenarios in a safe, easy to use learning environment. Implement a communication plan that uses existing information and people in the industry to develop a specific features, advantages and benefits package focused upon the wants and needs expressed by people unrelated to the cashmere industry as outlined in this report. Control more steps of the investment decision-making process. This recommendation follows on from Michael (1999) where the reduction of search costs and thinking costs and the reduction of time obsolescence costs were a benefit of cashmere industry conferences in conjunction with standard extension methods. That is, industry conferences represent a greater control of the information dissemination process. Determine the feasibility of harvesting cashmere from feral goats. RIRDC and the Australian Cashmere Growers Association are strongly encouraged to invest in the development of this commercial vision. Once areas can be addressed and the medium term feasibility of the enterprise is demonstrated then the industry could work toward increasing its visibility to the broader rural community with greater confidence. The industry will need to work toward establishing an efficient supply chain through to the dehairing facility in order to build people s confidence to invest in the industry. ix

10 1. Introduction The cashmere industry is an established small industry exporting less than 0.5% of the worlds cashmere. The cashmere industry has significant potential to expand. The cashmere industry needs to increase production at least 10 times to obtain some economies of scale and probably 15 times to attract commercial services to overcome the burn out of volunteer labour. While the infrastructure and supply chains exist for a considerably larger cashmere industry, existing farmers and newer landholders have not been attracted in sufficient numbers to counteract the exit rate. The cashmere industry undertook business-planning exercises during the late 1980s and also in the early/mid 1990s without consulting a prime audience, landholders that were not in the industry nor did they consult with people exiting from cashmere production. Since these times, no increase in industry entry rate has occurred. It is fair to say that without some creative change in strategy that the cashmere industry may not develop to its market potential and may wither Objectives The outcomes and research objectives were: 1. To identify the perceived impediments to diversifying into cashmere production within and outside the industry. 2. To suggest targeted programs and strategies that industry peak bodies, associations and investors could implement. 1

11 1.2. Stakeholders and satisfaction orientation Table 1 lists major stakeholders in the cashmere industry and provides a definition and their view on what industry success would look like. Table 1: Stakeholders and views of cashmere industry success Stakeholder Definition Satisfaction Orientation Stud producer Commercial producer Ordinary producer People harvesting feral goats Commercial producers unrelated to the industry Brokers Textile processors Goat meat processor Australia Cashmere Growers Association (ACGA) Goat Industry Council of Australia (GICA) A business that owns and operates a cashmere enterprise but whose primary income is derived from the sale of stud animals. A business that owns and operates a cashmere enterprise but whose primary income is derived from the sale of cashmere (> 100 kg of production per year), meat animals and live unregistered animals. A business that owns and operates a cashmere enterprise but whose primary income is derived from the sale of cashmere (< 100 kg of production per year), meat animals and live unregistered animals. A business harvesting feral goats for the goat meat market. A person farming established and significant land resources with one or more established and profitable enterprises; who controls resources that are highly compatible to the cashmere enterprise and stands to benefit from investment in a cashmere enterprise. A business that buys unprocessed fleece and prepares (classes) the fleece for on sale to textile processors e.g. Australian Cashmere Marketing Corporation. Businesses that process cashmere into textile materials. Example: Belissa Cashmere and Cashmere Connections. A business that buys meat goats from producers. The organisation representing cashmere producers. The umbrella organisation representing the goat meat and fleece industry. Sale of stud cashmere goats and their by-products. Profitable sale of cashmere goats and their by-products (fleece, meat). Property and herd maintenance and sale of animals and their byproducts. Volumes of goats at correct market weights. Profitability and job satisfaction. Increased cashmere quantity and quality put through the broking business. Sufficient quantities of cashmere at required quality. A greater quantity and quality of goat meat and more reliable supply. Increased Association membership and revenue. Development of the goat industry in Australia. State Government NSW, Vic, SA, WA, Qld, Tas, NT Increased investment, employment, exports and environmental sustainability in regional Australia. State Farmers Federations Representative organisations in each state representing farmer s interests and having representation on GICA. Outcomes that benefit the goat industry. 2

12 1.3. Methodology and scope The following methodology was used for this report. Phase 1: Identifying issues relevant to the expansion of the cashmere industry. This project built on the outcomes and techniques developed in a Department of Natural Resources and Environment project "Creating new enterprises and jobs on small farms" (Chaffey and McGregor 2002). That work identified that people making diversification decisions evaluate five attributes of an opportunity in formulating their position. A list of 45 questions developed from Chaffey and McGregor (2002) was used in an interview process. Questions focused on the following areas and attempted to differentiate the views and expectations of small and large-scale producers of cashmere as well as largescale producers who were not involved in the cashmere industry: Confirming the financial and non-financial motives and expectations for the enterprise. Determining perceptions of suitability (compatibility) of the enterprise to the existing farm system. Determining technical, financial and market feasibility and comparative advantage. Identifying the level of trust in information. Identifying common objections to the enterprise. Identifying learning and information channels. Identifying attitudes toward different sources of breeding stock. Identifying first perceptions of products, industry associations and enterprises. Discussion on broader industry issues. Identifying if people would adopt a cashmere enterprise Identifying what conditions are required to interest people in a cashmere enterprise. Phase 2: Interviews with people and evaluation of resource material. Targeted interviews of people internal and external to the cashmere industry were conducted by telephone and interviewed for approximately 45 minutes. Interviews of additional people were discontinued when it became apparent that the scope of the responses was not adding further insight into the issues of relevance. Not all questions were asked of the total sample. Once a particular trend emerged the question was no longer asked or a different audience was asked other questions. The findings are arranged in order of questions asked. A focus group was conducted at the ACGA s annual general meeting in May Thirty-five people were interviewed over one and a half hours. Also analysed was information material provided by ACGA and RIRDC to people interested in cashmere production. The review of the information available (service elements) for people inquiring about a cashmere enterprise evaluated material using the following criteria: the way the information is offered, how it is offered and pricing policy (form); the benefits offered by the service (service concept); its date of production, how it is delivered (delivery system); and the quality of the service (service levels). 3

13 Phase 3: Development of future strategies A brief review was completed of principles of selling and the way the selling process is conducted and of the investment decision-making process. Based on the collected information, suggested future strategies for government agencies and private sector providers and the industry were developed Demographics of telephone interviewees Thirty-five people were asked a series of questions through telephone interviews. Not all people were asked all questions. Of the interview sample, eighty six percent were currently farming. The sample had people from all mainland states. People from the service sector were selected on basis of their knowledge and experience of animal industries. Preference was given for people who had the most knowledge and experience and hence who were able to answer questions with confidence and some authority. People who were unrelated to the cashmere industry were selected on the basis of the size of the farm they managed. Preference was given to people who managed large-scale commercially focused enterprises. People involved with cashmere industry were selected on the basis of the size of the cashmere enterprise, their location (preferably in rural regions, not coastal or metropolitan fringe) and the length of time they had been in the industry (preferably more than three years). Seventy seven percent farmed more than 500 hectares. Six percent farmed from 100 to 500 hectares, and three percent farmed less than 100 hectares. Fourteen percent were not farming. Sixty three percent were between the age of 40 and 60 years. Thirty one percent were 60 years of age or older. Six percent were in the 30 to 40 years age bracket. Eighty two percent of the people interviewed were unrelated to the cashmere industry. Six percent were in a service industry capacity. People who were unrelated to the industry had an average of 38 years farming experience. People involved with the cashmere enterprise had an average of 18 years experience with the industry. 4

14 2. Results of surveys 2.1. Targeted interviews with people internal and external to the cashmere industry A full list of questions and responses is provided in Appendix 5.2. The analysed results are provided below. Note that the same survey questions were put regarding the mohair industry and the same replies where given for both cashmere and mohair particularly from participants unrelated to these industries Motives for operating a cashmere enterprise Profitability was given as the primary financial motive for running a cashmere enterprise followed by financial security. Job satisfaction and to a lesser extent job variety were the major non-financial motivators for a cashmere enterprise. A generalisation could be that people who have large herd sizes have a large capital investment in the enterprise, are motivated more by profitability and the satisfaction they get from running an enterprise and participating in an industry. All other reasons are secondary. A focus for motivating people about the cashmere enterprise should be three fold. Proving profitability of the enterprise compared to other possible enterprises. Financial stability of the enterprise over time. Personal satisfaction and achievement. This conclusion is supported by a sample of the many comments from people unrelated to the industry. If it was highly profitable or more profitable than prime lambs or wheat or super fine wool and I'd measure profitability by $/ha and Return on investment. Profitability. I would want as much or better income than what I am doing now and I would not hesitate. I would measure it by gross margin / ha. I would consider it if the costs of production to produce fibre were very low and profit 3 times higher $/ha It would have to give me more profit than wool and sheep meat to even consider it and it would have to stay that way. If it became more profitable than our current enterprise; we are businessmen Compatibility of farm systems to the cashmere enterprise People in the cashmere industry were asked two questions to determine their view of the importance of compatibility (suitability) of the farm system to a cashmere enterprise and the ease or otherwise of determining compatibility (Figure 1). People unrelated to the cashmere industry were asked the same questions. They placed less importance on compatibility issues (Figure 2). 5

15 Ability to manage cash flow needs Abiilty to physically handle goats Ability to budget time needs Weeds affecting fleece contamination Weeds for brow sing Suitability w ith other livestock Shelter Pastures & grazing needs Yards Fences & fencing Farm Location Importance Ease Figure 1: Compatibility issues by people operating a cashmere enterprise [Importance Scale; 5 = highly important; 4 = Important; 3 = Mildly important; 3 = Unimportant; 1 = Not considered] [Ease Scale; 5 = Very easy; 4 = Easy; 3 = Difficult; 2 = Very Difficult; 1 = Do not know] Ability to budget time needs Weeds affecting fleece contamination Weeds for browsing Suitability with other livestock Shelter Pastures & grazing needs Yards Fences & fencing Farm Location Importance by people in the industry Importance by people unrelated to the industry Figure 2: Comparing perceptions of the importance of enterprise compatibility by people with and without experience of a cashmere enterprise [Importance Scale; 5 = highly important; 4 = Important; 3 = Mildly important; 3 = Unimportant; 1 = Not considered] 6

16 Origins of information The sources of information identified by interviewees are summarised in Table 2. Table 2: Origins of diversification information Source of information Industry associations Print media Electronic media Other people Government Comments Most people indicated the industry association, as a first point of call for information but one person suggested not going to industry association at all. NSW Farmers Federation was mentioned The goat farmer s magazine, books and journals. Web sites particularly industry association web sites. See a major broker and link to their large producers in my region. Experienced producers, people running an existing herd, local goat farmers. Departments of Agriculture and Pasture Protection Boards. One comment suggested not using these organisations, as they do not account for the whole picture. Comments from people unrelated to the cashmere industry identified independent people and organisations as important sources of information. Of note is the use of independent consultants such as Holmes and Sackett at Wagga Wagga. Opinions from people like this are very influential and many professional farmers seek advice through these channels. There were a number of difficulties raised about information. Firstly, people identified credibility and reliability of information as a problem. For example, people not giving honest answers or people who seemed to have a lot of experience but actually had little experience. Secondly, there were specific difficulties about the lack of information particularly on technical matters such as equipment, set costs, drenches and labour time. These are specific technical issues that either have answers or answers could be found from within a well-organised producer network. There was an expectation of information from the industry association. There was a need for accuracy in estimating labour time and finances. There was a need for connecting to people who were experienced and / or were doing the same thing, in a similar location and / or situation. A mentoring program was mentioned a number of times. Experienced people with a large-scale cashmere enterprise indicated that determining compatibility was both important and easy to do. Those inexperienced in the industry placed less importance on some issues yet thought information was more difficult to find. This suggests the information is available but it may not be readily accessible and / or in an appropriate form to make decision making easy, fast and effective. This implied two types of problems: Firstly, people indicated costs and time end up becoming larger than anticipated. This is a planning, budgeting problem for the investor and could be governed by the common problem of over optimism. Secondly, information was judged to be either inadequate in that important information was either not available or hard to find and / or unreliable when they did find it as many people in the industry gave advice that was not reliable or they were not qualified to give. When people consider investment in a particular enterprise they consider their suitability of the farm system to that enterprise. Currently, assessing the suitability of cashmere is not easy and comprehensive enough to ensure people make a fast and considered decision. While the industry has some very good 7

17 information to support suitability decision-making and there are a number of experienced producers of large scale who could be regarded as industry experts, the following weaknesses emerge. The information is scattered, poorly organised and incomplete to assist logical, clear and fast decision making for people investigating the cashmere enterprise. The industry has attracted people running small-scale operations in locations not ideally suitable for cashmere goats such as the urban fringe and coastal Australia. These people are less able to give sufficient advice to people running large farms and wishing to run large flocks of cashmere goats. There is inadequate use of experienced producers capable and willing to provide assistance / guidance / information to new people during their enterprise startup phase. Many of these producers are approaching retirement age Feasibility assessment People experienced in the cashmere industry were asked questions to determine their view of the importance of technical, market and financial feasibility and comparative advantage (versus wool, sheep meat or beef) of the cashmere enterprise and the ease or otherwise of determining issues of feasibility. People experienced in the cashmere industry indicated determining feasibility and comparative advantage was highly important yet difficult. They also indicated the opinion of other people was of mild importance and difficult to find (Figure 3). Trust in Information Comparative Advantage Financial Feasibility M arket Feasibility Technical Feasibility Importance Ease Figure 3: Views on feasibility, comparative advantage and trust in information by people experienced in the cashmere enterprise [Importance Scale; 5 = highly important; 4 = Important; 3 = Mildly important; 3 = Unimportant; 1 = Not considered] [Ease Scale; 5 = Very easy; 4 = Easy; 3 = Difficult; 2 = Very Difficult; 1 = Do not know] People unrelated to the industry rated feasibility and comparative advantage as being highly important. They perceived finding information more difficult than people in the industry and they had less trust in the people s opinions (Figure 4). 8

18 Trust in Information Comparative Advantage Financial Feasibility Market Feasibility Technical Feasibility Importance Ease Figure 4: Views on feasibility, comparative advantage and trust in information by people unrelated to the cashmere industry [Importance Scale; 5 = highly important; 4 = Important; 3 = Mildly important; 3 = Unimportant; 1 = Not considered] [Ease Scale; 5 = Very easy; 4 = Easy; 3 = Difficult; 2 = Very Difficult; 1 = Do not know] Views on technical feasibility of the cashmere enterprise Technical feasibility was defined as the ability to produce a product of sufficient quantity and quality. The following views were recorded: The sources of information were similar to that described in Table 2. Some technical issues were judged to be difficult to work out. Information was hard to find such as determining carrying capacity. Larger producers thought smaller hobby producers were not very helpful to their enterprise aims. People thought there was a lack of experienced and qualified people to give them advice they could rely upon. People suggested a range of improvements better connection with commercial producers, wider publication of research material and access to experts they could trust. There appears to be a mismatch between stud producers, ordinary producers and commercial producers. The ordinary and stud producer makes up the large proportion of the population of producers in the cashmere industry. The mismatch exists because of differences in enterprise strategy and issues and the meaning attributed to language used by the two groups. While people in the industry are motivated and capable of defining and resolving problems and existing commercial producers are experienced and knowledgeable the following weaknesses emerge. The industry is weak at capturing the knowledge between the people engaged in commercial production of cashmere and as a consequence are unable to use this information to on-sell their enterprise and industry. The technical data residing in the industry and its commercial relevance is difficult to find and use. Existing commercial producers are not being harnessed sufficiently to advance the credibility and appeal of the industry to the wider rural community. 9

19 Views on financial feasibility of the cashmere enterprise Financial feasibility was defined as the ability of the enterprise to provide a sufficient financial return over a given period of time. Many people in the industry would find financial information from other breeders, their own budgets and historical prices. Some of the information was identified as outdated. People unrelated to the industry were not aware of financial studies. They might modify someone else s spreadsheet or use Department of Agriculture data. Difficulties arose because of the lack of ability to assess the financial feasibility of an enterprise over a number of years and with many variables was considered difficult. People in the industry indicated their financial analysis of the enterprise was not detailed or very reliable hence they were likely to find their enterprise budgets and estimates very different to reality. People identified a need for better use of historic information such as average fleece prices, the use of software packages, extended periods of financial analysis over a numbers of years and being able to run sensitivity analyses and the use of case studies as important things that would make their decision making easier. People unrelated to the industry would like to measure financial feasibility based on cash flow over multiple years, gross margins and ROI. There seems inadequate historical price and other important information and the means of using it to enable people to quickly and easily assess the financial feasibility of a cashmere enterprise. Static price and cost data is available and can be used to determine gross margins however it is over five years old. Most financial information such as price data is not available in electronic form. This makes it difficult and time consuming for anyone to construct their own financial assessment and understand the effect of price trends on their profitability and the sensitivity of important variables. While basic financial information is available the following weaknesses emerge. There is a lack of benchmarking information upon which financial feasibility can be based. There is not a system to enable people to adequately and quickly test the financial feasibility of cashmere and little information on the assumptions they might make about the supply and demand variables affecting the enterprise over a useful time frame of five or ten years. Information about the additional benefits of pasture composition improvement, synergies with other livestock and weed control is not part of any current financial analysis. There is a lack of a credible comparison between cashmere and other mainstream animal enterprises Views on market feasibility of the cashmere enterprise Market feasibility was defined as the ability to move a product(s) from farm to market(s) and receive a satisfactory price. People in the industry found their information through trial and error, experience, chance conversations, newsletters and past journals. People unrelated to the industry were not sure where they find market information but their expectations of brokers providing market information were high. They identified the need to know critical mass and market risk as important. Reading about the cashmere markets in the mainstream papers would increase their knowledge and confidence. While prices for cashmere and other market information are available the following weaknesses emerge. 10

20 Price risk is perceived to be too high. The history of cashmere prices is not related to enterprise profitability. The role of brokers and their services could be more visible to the wider rural community. The visibility of market indicators / signals is less than it could be Views on comparative advantage Comparative advantage was defined as the comparison of one possible enterprise versus another. People unrelated to the industry said they would like to have credible benchmarking information spanning a number of years like what is contained in the south-west farm-monitoring program. Opinions from private consultant groups, such as Holmes and Sackett, were also mentioned. The lack of credible, comparable information is a major impediment to the larger scale farmer wishing to compare the cashmere enterprise with other enterprises. Larger scale farmers have a higher demand for credible and detailed information that has been proven correct over time. They also respect credible consultants and look to these people for their opinions. The Seymour Farm Field day, breed societies and other small breeders are less likely to provide sufficient credible information to this segment. While some comparison information is available the following weaknesses emerge. There is a lack of sufficient and credible comparison data enabling people to adequately compare a cashmere enterprise to other possible enterprises. Cashmere is treated as a fringe industry and is not included in mainstream benchmarking studies. The right information, properly presented, easily accessible and from credible origins is required. Lightweight piecemeal information activities using the language of the urban fringe will lack credibility and will not appeal to commercial producers Information and trust in the industry People in the cashmere industry nominated their accountants, major shows, brokers, reputable breeders and large commercial producers as important sources of information. People unrelated to the industry nominated Departments of Agriculture, industry associations and consultants as important sources of information. Comments were made by people from within the industry about the bias and unreliability of information. This was directed at people who try to paint the best possible picture and / or give incorrect information either intentionally or not. Information from commercial producers, independent organisations or retired breeders was regarded as having more credibility. While breeder producers are considered an important source of information they are also regarded as a source of biased and unreliable information that is directed by self-interest. They are also viewed as breeding animals for success in stud shows that are not suitable for commercial success. People from outside the industry are looking for reliable and credible information and advice. While there are some information providers in the industry who are very good the following weaknesses emerge. Information in the industry is not organised and packaged to gain and sustain credibility. This reinforces mainstream agriculture s view of cashmere as being a fringe industry. 11

21 The common sources of information such as people and organisations in the industry are perceived to lack credibility in the eyes of some people internal and external to the industry Common objections to a cashmere enterprise People object to a cashmere enterprise because they lack knowledge or are not motivated to find out. Many people perceive goats and the goat industry negatively and do not differentiate between goat breeds so the behaviour of feral goats is transferred to cashmere goats. A large part of these perceptions can be based on experiences dating back more than ten years. There are perceptions of low profitability, high cost of fencing and handling difficulties. Some people commented on the lack of observable large successful cashmere enterprises. Others thought there was a lack of ready market outlets for fleece and cull for age stock. While people hold opinions about goats the following weakness emerges. The cashmere enterprise is not sufficiently represented to the wider rural community in ways that create positive perceptions or correct misconceptions Would people invest in a cashmere enterprise? Twenty-one people unrelated to the industry were asked if they would invest in a cashmere enterprise Twenty out of twenty one people (95%) answered no to this question. When asked why they answered no, they volunteered a range of comments. They doubted the economic feasibility of the enterprise. They perceived difficulties associated with handling the animals. Some people admitted they just did not know much about the enterprise, industry and markets. Others admitted they were just not interested Perceptions of enterprise advantages Twenty-one people unrelated to the cashmere industry were asked to state three advantages of a cashmere enterprise. Fifty percent said they did not know of any advantages. The other fifty percent identified advantages such as better pasture use, easy care, and good weed management. No one mentioned profitability. Half of the sample was half way to articulating benefits. The responses are assembled in a format to allow examination of the thinking from the identification of features to the articulation of benefit (Table 3). As benefits are more difficult to articulate and substantiate the benefit column has been left blank to enable readers of this report to fill in their own perception of benefit. Table 3: Advantages suggested by people unrelated to the cashmere industry Feature (characteristics) Better pasture use Easy to care for Good weed management Advantage (what the characteristics do) The efficiencies of goats to utilise rough pasture and weeds. You can run a few goats without reducing the number of sheep or cattle. They eat weeds where cattle and sheep don t. Goats eat a wider range of poorer feeds; weeds and scrubby stuff that sheep won't eat. Probably good if you have really rough country. Reduced husbandry aspect; less flies and no footrot. Reduced drenching requirement. Good on all weeds. General weed removal. Eat weeds and blackberries in very rough country. Reduced chemical use. Benefit (what this means for an individual person) 12

22 Perceptions of enterprise disadvantages People were asked to state three disadvantages of a cashmere enterprise. Many people referred to goats ability to escape. They perceived them as difficult to handle. Husbandry issues such as feet trouble, parasites, lice and susceptibility to adverse weather were mentioned. Some people had concerns about markets, such as boom and bust cycles and easy of buying and selling stock. People were uncertain about the enterprise profitability What convinces people to diversify? People who were unrelated to the cashmere industry were asked what would convince them to invest into a cashmere enterprise. There were many comments about the need for the enterprise to be profitable. Some comments reflected the desire for easier handling. Two people were concerned about the capital cost of fencing and infrastructure upgrades. Some people identified they would want to know more about the enterprise first. Other people identified the need for established markets, well-organised marketing, stable prices and less market risk. Some comments indicated a desire to see other people being successful. Some people expressed a direct disinterest for the enterprise. Three people (14%) indicated they would be interested if the enterprise was able to fit well with their existing operations or if it solved a particular problem such as weed control or the utilisation of rough country. One comment indicated a reputable person or organisation would be influential to their decision People would not be convinced to establish a cashmere enterprise by one factor alone. They would want to be convinced by enterprise profitability, reliable markets, easy handling and low time input and a nice fit with the current operation. Commercial farmers would be more convinced if they saw other people being successful with cashmere production and reputable people were advocating cashmere production Potential herd build up if the enterprise was judged feasible Sixteen people were asked a hypothetical question about their intended herd build up over ten years if they did invest in a cashmere enterprise. On average they indicated they would establish a significant herd size over a ten-year time period (Figure 5). Some expectations of herd size would be considered unrealistic because of the lack of available animals in the industry. However penetrating this segment is likely to achieve growth in the industry Yr1 Yr3 Yr5 Yr10 Average flock size Figure 5: Intentions of herd size build up over 10 years based on the average response of 16 respondents 13

23 2.2. Focus group findings People taking part in the group workshop held at the annual general meeting of the ACGA were asked what they thought were the advantages and benefits of the cashmere enterprise compared to other animal enterprises. These questions identified a range of features and benefits about the enterprise and the industry. Most comments were not well organised into feature advantage benefit statements hence the data contained in the following tables reflects what was said at interview. What it does show is the industry is not articulating very well the reasons why anyone should adopt a cashmere enterprise (Tables 4, 5, 6, 7, & 8). The columns for benefits and in some cases advantage have been left blank or the listed benefit has been questioned. Individuals and industry need to address the issues of advantage and benefit and complete these tables. Table 4: Features and benefits related to enterprise profit Feature (characteristics) Advantage (what the characteristics do) Benefit (what this means for an individual person) High fertility rates More kids per doe So what? Low capital requirements to start the Capital investment to start the Faster return on investment? enterprise enterprise is low Reduced need for traditional farm equipment Low cost enterprise to run Low labour costs Can run more animals to the hectare Profitable compared to other animal enterprises? Can sell both meat & fleece Dual product enterprise Large international market for meat Consistent demand for meat goats Strong demand for fleece Consistent demand for cashmere A cashmere enterprise spreads risk Table 5: Features and benefits related to animal handling Feature (characteristics) Advantage (what the characteristics do) Benefit (what this means for an individual person) Less drenching No fly strike No crutching Easy to shear No foot paring No mulesing No tail docking Less lice damage Easy to muster Less worm problems Intelligent Not a greasy fleece Simple & easy classing Small animals Easy to market culls Easy to market fleece Easy to train Does not get onto clothes and skin Similar classing needs to wool Easier to handle compared to cattle Marketing culls is similar to marketing sheep Single grower owned and controlled fleece marketing organisation So what? So what? 14