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New Zealand Biella Merino Programme 2009 TITLE :

Short Form Summary

AUTHORs : Richard Gloag, Blythe Rees-Jones, Nick Aubrey, Simon Causer prepared For : Merino Inc, The New Zealand Merino Company, Meat & Wool NZ DATE : 15/06/09 KEYWORDS : Italy, Biella, Master, Noble Fibre, Merino

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Introduction This overview complements a full report (available through Merino Inc) prepared by the four-person team that travelled to Biella, Italy in February 2009 as part of the 2009 Biella Merino Ambassador Programme. The group included representatives from merino farming, wool marketing and sales, and design/fabric manufacturing sectors in NZ, as well as a textile technologist, whose role was to assist the team in interpreting their observations of the Italian wool processing industry. The team was hosted by the Biella Masters Programme for two weeks and had the opportunity to observe wool scouring and top making, worsted and woollen spinning, fabric manufacture, garment make-up and retail. They also met with leading figures involved with design and business management functions within the Italian textile industry. A previous team from New Zealand, who visited many of the same plants in 2007, provided a detailed overview of the individual operation of these (which has been added to with a set of site visit notes from the current team). Hence, the 2009 report focuses on the business models adopted by these companies, their approaches to innovation, responses to market pressures, requirements in terms of fibre supply, and vision for the future. Specifically, it discusses: \\ The economic environment in which the Italian textile industry operates \\ Production, processing and marketing of NZ Merino fibre \\ Drivers for design and sustainability

The Italian industry is currently facing key challenges around maintaining and growing the market for fashion and business apparel, made even more difficult by the current economic climate. However, being regarded as the world’s leader in worsted apparel manufacture, and with its considerable past investment in plant, technology and people, it is well placed to achieve this. Key learnings for the team whilst in Italy are included in this summary. 2

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General Aspects \\ There is an exceptionally high degree of complexity and capital investment involved in taking greasy wool through to finished product. \\ The view amongst Italian processors is that NZ wool is, on average, longer, whiter, and stronger than wools from other countries and has a lower level of vegetable matter contamination, but still has room for improvement in some aspects of style. \\ The Italian industry has very specific requirements in terms of wool quality and preparation which can differ substantially from those required for wools destined for other product categories – for example the active outdoors market. \\ Italy remains an important market for NZ wool - particularly those wools at the finer end of the merino clip.

Economic/Business Models \\ The current financial crisis is having a major impact upon the industry, with several mill closures announced in the short time the team were in Italy, and most of the factories visited being down in production between 25-45% from where they were six months previously. \\ No foreseeable change in this situation is forecast for at least 12 months, and this will have a significant impact upon raw wool purchasing practices in the interim – particularly given it may take up to 12 months for wool to be processed from greasy stage to finished fabric. \\ Some mills are currently utilising the government run Cassa Integrazione Guadagni (CIG) fund, which pays a worker an 80% retainer in times of economic downturn (in a similar manner to which the NZ ACC scheme will subsidise wages in event of injury). \\ Individual mills within the Biella region have a high level of understanding of merino growing practices in NZ and Australia (many of their staff having worked on stations and some mills even owning stations) and they maintain detailed records of wool offerings from individual properties. \\ Without exception, the mills have an intense focus on product quality, and this has been a major driver for investment in automation and capital equipment. \\ The processors were passionate about wool, and about the products they produce from it. \\ Many mills were family owned and operated businesses, but are increasingly integrating outside expertise into their senior management and board structures. \\ Asia was viewed as a significant threat to Italy’s manufacturing base – but also as a significant market for product. Another key emerging market for high end apparel that was quoted by several mills was the former Soviet Union.

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\\ The ‘Made in Italy’ brand remains important to many processors, although some questioned its defensibility, citing the lack of understanding about what actually constitutes ‘Made in Italy’. Some mills preferred to build equity in their own brands and those of their customers instead.

Wool Preparation and Processing \\ The Italian industry relies almost exclusively on wool supplied from elsewhere in the world – the bulk of which comes from Australia and NZ. Other fibres (eg. cashmere and alpaca) are processed also – often in combination with merino – but are less significant in terms of their overall volume. \\ Key differences exist between the worsted and woollen processing routes – the latter being considerably shorter and requiring different fibre specifications than the former. They also produce yarns quite different in properties – those from the worsted system tending to be finer and less hairy than from the woollen system. \\ The top five things they are looking for in wool they purchase include good strength, style, micron, even (reasonably long) length and absence of faults (colour, VM, etc). \\ Wool over 40 N/ktex was preferred for processing, and NZ wools scored more highly for their lower incidence of mid-point breaks than wools from many other countries. Having said this, several also commented that its more even diameter-length profile resulted in it having a slightly harsher handle than wools with a discernable thin point. This confers a lower strength, but also a lower resistance to bending. \\ Outside of ranges such as Zelander by Loro Piana, blends of 100% NZ wool were virtually unheard of, with some processors combining up to 30-50 lines of wools with different characteristics to create the optimal batch characteristics for processing and end product performance. \\ Blends of NZ wool with 70-90% Australian wool were typical. \\ Style was an important factor governing purchase decisions and a high importance was placed on the frequency, amplitude and evenness of crimp (which has a strong influence on the

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processing characteristics and strength/extensibility of resultant yarns). \\ Many mills exhibited strong negativity towards Soft Rolling Skin-type wools as this style of wool was not always suited to their processing system. \\ Aspects of fibre measurement change during processing – for example, the diameter of wool measured in top form is generally 0.2 microns finer than in wool prior to processing. \\ Several mills visited (eg Loro Piana and Ermenegildo Zegna) run international competitions to encourage the pursuit of wool quality – awarding substantial prizes for the producers of highest quality fleeces and bales within the major merino producing nations of the world (Australia, NZ, and South Africa). \\ An optimal distribution of fibre length is desirable in a blend to facilitate efficient fibre processing and even yarn formation. Short fibres result in a high degree of wastage and poor yarn properties - strength, pilling, etc. Long fibres result in breakage and similar problems as if short fibres were present in the first place. Too even a fibre length will result in problems during fibre drafting and hence will affect yarn evenness – so some variation is necessary. \\ Traditionally many mills have preferred to buy greasy wool through the auction system as it allowed them to select from the widest range of wool types, and obtain these at a price most acceptable to them. However, some mills are re-considering due to the potential benefits of direct supply contracts. \\ Numerous mills commented on pressure from their customers (weavers, brands and, in some cases, consumers) to produce fabrics from unmulesed wool. Many had also been contacted directly by animal rights groups such as PETA. In this sense it appears the suiting market is starting to catch up with the active outdoors market in terms of its demand for ethically produced wool – and several manufacturers expressed concern about the ability of producers to supply enough unmulesed wool to meet this demand.

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\\ The Australian handling of anti-mulesing campaigns by groups such as PETA and SAFE was widely lamented.

Design and Sustainability \\ Design and fashion flair is a major differentiator for the Italian worsted industry. They are seen to be the centre for this type of activity worldwide, affording them a key point of difference from competing apparel and fabric manufacturers from other parts of the world (eg. Asia). \\ The majority of Biella mills rely on the three top making plants remaining in Italy for their fibre processing. \\ Some have taken ownership stakes throughout the supply chain (with activities spanning from farm ownership through to garment retail) while a few continue to act simply as commission processors (eg. fabric weavers/finishers). \\ All mills visited had sophisticated quality control and testing facilities which were utilised to control routine production, but also to support their own product development and design work. \\ The fact that wool was a natural fibre, with its own unique set of properties, was seen as a major point of difference by Italian designers, and their current focus was on promoting this fibre uniqueness as part of an overall package of garment/fabric attributes. \\ Some manufacturers utilised the IWTO ‘Super X’ and ‘X’ labelling scheme as a means of differentiating their products on the basis of wool micron – although others saw less value in this branding scheme, noting that maximum mean fibre diameter was only one determinant of fabric performance, and didn’t convey any additional information.

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\\ Production of fabric was split into Autumn/Winter and Spring/Summer collections, with some mills producing both men’s and women’s collections, whilst others had a definite focus on either one or the other. \\ Suit manufacture was a very complex process – with each suit jacket, for example, consisting of 30-40 individual components, brought together in 125-130 individual production steps.

Conclusion It is hoped that the insights the team gained into the Italian worsted industry, wool processing and marketing, fashion and design, and raw material requirements can now be built upon (through interaction with growers, and key users of NZ merino) and translated into commercial opportunities for the NZ merino industry.

\\ There has been a significant shift in recent years for Italian manufacturers to create customerfacing brands. The development/acquisition of retail networks has been a major part of this for companies such as Zegna, Loro Piana, Barbera, etc – while others have remained simply as fabric suppliers to a multitude of different brands. \\ The geographical location of the Biella textile industry (at the foothills of the Italian alps) was originally chosen for its proximity to high quality water supplies (as a raw material utilised in production, but also as an energy source) but legislation strictly governs discharges to these bodies of water which, for some mills, amount to small streams, only several meters in width. \\ All mills visited had installed some form of waste water treatment system, with the more advanced plants employing sophisticated filtration, aeration and chemical flocculation systems – coupled with high levels of water reuse/recycling within the plant itself. \\ Pesticide residues within greasy wool is an issue potentially on the horizon for some scourers, although those spoken with suggest the technologies in place at the moment will enable them to continue operating at current levels for some time yet. \\ Most mills had eliminated contentious chemicals from use in their dyehouses, and significant gains have been made towards minimising water usage in wet processes. \\ Few if any chemical auxiliaries are employed in fabric finishing, outside of detergents.

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NZ Biella Merino Programme 2009: Shortform Report