Briefing from Zespri

Transcription

1 Briefing from Zespri Report of the Primary Production Committee Contents Recommendation 2 Introduction 2 Overview of Zespri 2 Market competition and innovation 2 Kiwifruit industry structure 3 Recovery from Psa 4 Offshore investors 5 Appendix 6

2 Briefing from Zespri Recommendation The Primary Production Committee has considered a briefing from Zespri and recommends that the House take note of its report. Introduction On 30 April 2015, the committee received a briefing from representatives of Zespri, including its chairperson, Peter McBride, and Lain Jager, the chief executive. We heard about developments within Zespri, including steps of recovery from the damaging Psa outbreak, the current structure of the kiwifruit industry, dealing with competition in the global kiwifruit market, and current and future innovations within the industry. Overview of Zespri Zespri International Limited is the world s largest marketer of kiwifruit, and manages 30 percent of the global volume of kiwifruit. The company has 17 offices worldwide, with 350 employees (half of which are offshore) and a global headquarters based in Mount Maunganui, New Zealand. 1 Zespri exports almost all of its kiwifruit and thus competes predominantly in the exported fruit market, of which the global kiwifruit industry makes up about 2 percent. We heard that $4 billion has been invested in New Zealand kiwifruit orchards and about $600 million invested in packer exporters. Market competition and innovation We heard that there are two seasons globally for kiwifruit production; one for each of the northern and southern hemispheres. New Zealand s main competitor in the southern hemisphere is Chile. Of the 1.4 million tonnes of kiwifruit that are produced each year, New Zealand produces 350,000 tonnes, while Chile produces 200,000 tonnes. Zespri said that there are two main challenges relating to our competition with Chile. First, Chile s production costs are approximately half of New Zealand s because of cheaper labour, and secondly, New Zealand has a stronger currency. We asked whether Chile s industry has diversified as much as New Zealand s in terms of kiwifruit varieties. We were interested to hear that the most diverse kiwifruit industry is in fact in China, where half of the volume sold is green fruit, and the other half is made up of a quarter gold fruit, and a quarter red fruit. Italy and Chile are the two other very large kiwifruit producers, but have less of the gold variety due to their later entry to the market compounded by the difficulty of growing this particular variety. We heard that the majority of kiwifruit sold and consumed around the world is the green Hayward variety, and noted the great potential of the gold variety to introduce new consumers to the product here in New Zealand. 1 About Zespri, Zespri International Limited, 2

3 We were interested to hear that Zespri remains competitive in several ways. The first is by creating a premium on the product of at least 40 percent through heavy investment in marketing, with over $100 million to be invested in Ongoing investment in innovation totals approximately $20 million annually, which represents 1.5 percent of net sales. Innovation is focused on areas such as plant breeding, orchard productivity, and marketing the health attributes of kiwifruit. Zespri acknowledged contributions towards innovation funding through Callaghan Innovation, the Primary Growth Partnership, and Plant and Food Research. We were concerned that kiwifruit sourced by the company from countries such as South Korea, France, Italy, and Japan done in order to ensure availability of the product yearround might not meet the same quality standards imposed on New Zealand-grown fruit, and might not be clearly identifiable. We were reassured that such kiwifruit is marketed in a way that clearly identifies its origin, such as Zespri Italian kiwifruit, and that the same quality standards are applied by Zespri worldwide. Some of us were concerned about the harmful properties of the chemical Hi-Cane, used for encouraging bud break in kiwifruit vines. We heard that Zespri is well aware of the risks of using the chemical and is working on developing alternatives though this may take some time. Organics In New Zealand the choice to grow organic produce is up to the grower. We heard that yields for such kiwifruit are lower than for conventionally-grown produce, though a 20 percent premium on organic kiwifruit is normally achieved. We heard that the fastestgrowing markets for Zespri kiwifruit are mainly in China and Southeast Asia, but that organic products are not well represented there. We will follow with interest any developments with the market for organic products in these countries. Kiwifruit industry structure There are two types of industry structure relating to the kiwifruit industry, one fragmented and the other integrated. Fragmented structure We heard that there are two main points in this structure where actions by participants can act to drive down return for producers. Packer exporters: these exporters seek to procure fruit from growers and obtain the best price possible for them. However, this has the effect of all packer exporters seeking the highest-returning markets, and can result in the oversupply of those markets. In addition, because these exporters are subject to highly competitive pricing, they may find themselves unable to afford investment in innovation or marketing. 3

4 Import distributors: these are relatively large businesses that have two ways of buying the product from growers either at a fixed price, creating incentives for import distributors to buy the product at the lowest possible fixed price, or on a consignment basis, meaning that they will take a commission for selling the fruit and then sell it at the prevailing market price. We noted that the commission option can be detrimental to growers, who must bear all the risks of an uncertain market price. Integrated structure The New Zealand kiwifruit industry uses an integrated supply chain with a single point of entry. We heard that under this structure, packer exporters must still compete to procure the fruit from growers. However, Zespri s allocation of the product worldwide avoids the problem of the oversupply of markets, meaning that packer exporters are competing more in terms of innovation and efficiency. We also heard how Zespri selects a sufficient number of distributors maximising wholesale-retail reach, but not choosing so many as to cause confusion in the market. Finally, Zespri also sells the fruit at one fixed price to all distributors, meaning that those distributors are not exposed to price risk on the procurement cost of the product. Thus, fruit allocation across markets is optimised, and incentives of offshore distributors can be aligned with incentives for New Zealand kiwifruit growers. Recovery from Psa Psa is a bacterial kiwifruit vine disease that was first detected in New Zealand in This disease continues to kill kiwifruit in New Zealand every year, and the number of Psapositive orchards in New Zealand is now over 1,600, with 57 percent of all hectares in these orchards containing infected vines. 2 We heard about the ramifications of the Psa outbreak on kiwifruit volumes. In particular, we note the impact on some of the gold varieties, where in 2011 volumes collapsed to a production of just 10 million trays in that year. We heard about forecasts projecting the rapid recovery of various kiwifruit varieties, with 2015 expected to produce 30 million trays of predominantly the Gold3 variety of kiwifruit, and 50 to 60 million trays per year expected by To continue to coordinate the response to ongoing Psa outbreaks, Kiwifruit Vine and Health has been set up. We were interested to hear that the New Zealand kiwifruit industry s rapid recovery from the disease has become an internationally-studied model for how to respond to a serious disease incursion. Zespri said that it is now on track to becoming a $2 billion industry by We acknowledge the recovery the industry has made from the Psa outbreak and note the value of the integrated structure of the industry in the course of this recovery. We also appreciate the value of the structure for the successful marketing of a perishable product. We were concerned about the potential for antibiotic resistance of the Psa bacterium. It was acknowledged that some isolated cases of resistance to the antibiotic Streptomycin have arisen recently, though this is not an uncommon result for this particular antibiotic. Currently, the use of the antibiotic is limited to up to two applications per year, and a $3 million heavy-residue testing programme is being used to monitor it. We were reassured 2 Psa (bacteria kiwifruit vine disease). Ministry for Primary Industries, updated 12 May

5 that any instances of resistance are being studied carefully, but that alternative ways of combating Psa must be developed before the industry can move away from using the antibiotic. We note that copper, which is also used to maintain vine health, is used more frequently than Streptomycin and any resistance to this would pose a much greater problem. Offshore investors We asked whether there has been any interest expressed by offshore investors in the industry, and were told that there is little. This is mainly due to the small size of many orchards, which would make consolidation very difficult, thus restricting the likelihood of a large-scale investment that would usually attract foreign investors. 5

6 Appendix Committee procedure The committee heard evidence from Zespri on 30 April 2015 and considered it on 23 July Committee members Ian McKelvie (Chairperson) Todd Barclay Hon Chester Borrows Steffan Browning Barbara Kuriger Hon Damien O Connor Richard Prosser Stuart Smith Meka Whaitiri 6