Dark clouds gather for Stone Shi

Dark clouds gather for Stone Shi

MASERU-STONE Shi, the Chinese man who is the sole broker of Lesotho’s wool and mohair, could have misled the government about his ability to get better prices for local farmers.
Investigations by thepost have also revealed that Shi could be struggling to find buyers for the wool and mohair.
Shi touted himself as a skilled broker who could get better prices for Lesotho’s wool and mohair in China.

He said he could sell it faster because he is based in Lesotho and has direct contact with ready buyers in China. Against widespread reservations, the government then tinkered with regulations to force farmers to sell their wool and mohair locally.

As the only registered broker Shi became the only person to whom farmers could give their products.
Despite vehement resistance the government forced farmers to send their product to his Wool Centre in Thaba-Bosiu.

At that time Shi said he would get better prices than what the farmers were paid by international buyers at the BKB auction floors in Port Elizabeth. Out of options, most farmers surrendered their wool and mohair to Shi.
But things don’t seem to have worked out the way Shi wanted.

The first problem, investigations show, is that the wool is not selling as fast as he promised. By last week the Wool Centre had sold 600 tonnes of wool for M96 million, according to the centre’s spokesperson Manama Letsie. That is only 10 percent of the 6 000 tonnes Lesotho is estimated to have produced this year.

So farmers have to wait longer for their cheques while Shi struggles to find buyers for their wool.
Most have been waiting since October last year when they delivered their wool to the centre.
Some surrendered their fibre to Shi in November when it became clear that the government was not going to budge on the regulations. Thus far it is not clear how long it will take for Shi to sell all the wool.

A man of lofty promises, Shi initially said farmers were going to be paid 14 days after delivering their wool to the centre. That seems to have changed along the way. Now some farmers say he has told them that their payment could take as much as four months.

And when does the four months start? Farmers say Shi tells them that they should start counting from when the wool is delivered in China. But for the shipment to take the wool has to be auctioned in Lesotho first.
What is the schedule for the auctions? Shi tells farmers that he is not sure and they should just wait.

All this could be an indication that Shi might not have the financial capacity to pay the farmers and he is only waiting for payments from his buyers in China. Under normal circumstances brokers should have a strong financial backing to fund payments.

Shi does not seem to have a financial support from any local or international banks. It is that lack of money that could be behind the delayed payments.
By last week Shi was asking some farmers to submit their banking details after telling them that cheque paper is expensive. Farmers say he already had those banking details. And even if he didn’t, they still question why it took him so long to request them.

Thating Nkhahle, chairman of Mokhotlong Wool and Mohair Association, believes Shi is trying to buy time because “farmers’ account numbers were already available through stock sheets”.
“We have heard that some are already getting their money but we are yet to see proof,” Nkhahle says.
The “money” Nkhahle is referring to are small deposits some farmers have received.

Shi told thepost last week that he has paid about a 1 000 farmers. There are more than 40 000 wool and mohair farmers in the country.
Aaron Moketa, chairman of Moremoholo Stud in Mokhotlong, says last week farmers gathered at the shearing shed to submit their accounts.

“We went there last week Thursday to enquire what we should do to also get paid and we were told to provide account numbers as the cheque method seems costly,” Moketa says.
He says they were not sure when they will be paid after submitting the account numbers.
“We fulfilled the part of our deal to take wool and mohair to the centre now it is time for the centre to fulfill its side and pay us. Now we are really struggling to make ends meet.”

Despite struggling to get buyers, Shi is reportedly rejecting offers from some buyers. Two wool buyers tell this paper that Shi told them that he is only selling to buyers from China.
thepost can today reveal that Shi might have oversold his ability to get better prices. Facts don’t support that claim. The world’s biggest wool market is the Australian Wool Exchange where 50 000 bales are sold per week. To put that into perspective, Lesotho’s annual wool production is around 40 000 bales. It therefore follows that Australian Wool Exchange decides the global price of wool.

Logically, therefore, buyers will never pay more than what they pay on the exchange.
The same Chinese buyers Shi says are his potential clients are also at the exchange.
They are also buying from the United Kingdom, New Zealand, Argentina and South Africa.
The chances of them coming to Lesotho to buy 40 000 bales for higher prices are as nonexistent as the sun rising from the west and setting in the east.

An additional complication is that the wool Shi is selling has not been tested according to international standards. The established practice is that the wool in each bale is tested for strength, length, width and impurities before it is auctioned.

The quality of the wool Shi is peddling has not been verified. This untested wool is competing for buyers against the tested wool from other markets. It is highly unlikely that international buyers will shun tested wool for Lesotho’s untested wool.

This however does not mean that Basotho farmers have produced inferior wool. It just says the wool’s quality has not been tested to reassure the buyers.

Something is curious about the price Shi has been mentioning. Last week he told this newspaper that he had sold a kilogramme of wool for US$13. That is too precise a figure for a product whose price changes every minute on the auctions.

The reality is that there is no standard price of wool in the world because it changes every day. If Shi was running a true auction then the price would fluctuate. That is the nature of an auction.
The problem though is that Shi’s system is so opaque that it’s difficult to get accurate information. Up to this week farmers don’t know how much of their wool has been bought and for how much. Who bought their wool and when, only Shi knows.

Farmers don’t know if they are getting the right price for the correct product sold.
And that is where the US$13 issue becomes crucial. The exchange rate between the US Dollar and the Rand changes every second. A second is about how long it takes you to say the word ‘mohair’. The question then is what rate Shi is using to pay the farmers.

Is it the M14.6413 it was on, say, December 23 last year or the M14.13 of January 4 this year. Is it the M13.8124 it was last Thursday or the M13.61 at around 11am yesterday?
How does Shi decide which rate to use when paying the farmers? Do the farmers know what rate has been used and are they allowed access to the records so they can verify?

Equally important is whether they are aware that their wool is being sold in United States dollars.
For the past three weeks farmers have been getting between M500 and M3 000. And this is after more than two months of waiting. They bitterly complain that they don’t know how much of their wool Shi has sold and at what price.

Shi is also not telling them who bought their wool, is not forthcoming on the grades and won’t say when they are going to be paid, they say. They also point out that Shi does not seem to have exact records of what he has received from the farmers and has sold to China.

There is also something peculiar with the way Shi is selling the wool. He is receiving the wool and then shipping it to the buyers before telling the farmers how much they will get.
Farmers have to wait for months before they know the price of their wool.
International brokerage rules don’t work that way. Auctions don’t operate that way either. The standard practice is that the buyer makes an offer to the farmer through the broker. If the farmer agrees to the price the buyer will make a payment and then the farmer agrees to release the product through the broker.

The broker only ships the goods to the buyer when the farmer has received the payment. On wool auctions around the world that transaction takes between five and eight working days.
That is how the wool auctions in Port Elizabeth works and that is the system local farmers have known for more than 40 years.

Think of it like you are selling your house through an estate agent. The buyer makes an offer through the agent. If the buyer and the seller agree on the offer the payment is transferred.
Only when the seller has the payment will the agent start transferring the house to the buyer.
Shi is not using that model. Rather he is taking the wool from the farmers before they agree on the price. He will then pay the farmer when the buyer had paid him some weeks later.

The farmers don’t have a say in the price. Only Shi, the broker, and his buyers in China are negotiating the price. This is the same as the farmers loaning Shi their wool and then wait for him to decide what he wants to pay for it.
Mohair farmers are in a worse position. Shi has not sold a single thread of the 800 tonnes of mohair. Their wool is piling up at the centre while they struggle to survive. In a few weeks the mohair shearing season will start yet they have not received a single cent for last year’s harvest.

There is a reason Shi cannot sell the mohair to his wool buyers in China: South Africa is the biggest buyer of mohair. Even if he sells to a Chinese company it will have to ship the same mohair to South Africa for degreasing and processing. All other countries bring their mohair to South Africa for processing. This is common knowledge to anyone who is interested in the mohair market yet Shi does not seem to understand it.

thepost has been told that a number of buyers from South Africa have asked about the mohair but Shi has spurned their offer. One buyer told this paper that the problem was not that Shi did not want to sell but that he doesn’t seem to have an idea about what he has.

“We asked how much mohair he has and he said he doesn’t know. We said can we buy it and he said no. So how do we buy something we haven’t seen? It’s just a mess,” said a buyer.
With the mohair shearing season starting and Shi still stuck with old stock, he might find it hard to get enough storage space. It’s doesn’t help that wool in his warehouse is also moving slowly.

Meanwhile, farmers are starving. Moketa of the Moremoholo Stud in Mokhotlong says the situation is unbearable. He said now the shepherds have left to seek employment in South Africa because farmers are unable to pay them.
Rantelane Shea, a former MP who is a farmer, says there was no way to make the shepherds stay.

“We asked them in November to bear with us in December. Asking them to do as well as in January would not have been fair as they also have needs and families to provide for,” Shea said.
As Shi’s operations hobble along while farmers sink deeper in poverty, the case for more brokers has become stronger. Government has said it will license one or two more brokers.

A second player in the market will give farmers choice and force Shi to compete on both prices and operational efficiency. Without a competitor there is no one to measure him against.

Lemohang Rakotsoane & Shakeman Mugari

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