Grower wades into kiwifruit stoush

New Zealand’s biggest kiwifruit grower wonders exactly what Turners & Growers chairman Tony Gibbs is planning next.

And, while Seeka chief executive Michael Franks disagreed with Mr Gibbs’ reasoning, he concedes there is merit to the argument.

Te Puke-based Seeka handles about 20% of New Zealand’s kiwifruit harvest and produces about 10% of the total crop itself.

The Guinness Peat Group majority-owned Turners filed proceedings in Auckland’s High Court this week with claims that Zespri has acted unlawfully with its dominant single desk seller position.

Mr Franks said he doubts this is the only step Mr Gibbs will take.

Under the Kiwifruit Export Regulations 1999, Zespri has a monopoly over the export of kiwifruit from New Zealand, except to Australia.

This single desk selling system is widely accepted by kiwifruit growers because it controls the volumes of their produce in the global market, which leads to higher prices. Control over fruit volumes would be lost with deregulation of the industry, and growers fear that would undermine their returns.

However, Mr Gibbs said Zespri does a poor job selling the concept of New Zealand alongside the brand, which is more valuable than the label.

“It’s very simple. We don’t believe the Zespri brand is the only way to go. We believe the brand is New Zealand.”

Speaking from London, where he is on business, Mr Gibbs said the kiwifruit marketer has ignored the strength of the New Zealand Inc brand in some ways and should be further trading on this country’s clean and green reputation overseas.

He pointed to New Zealand wine as an industry with many exporters who enjoyed success because of the this country’s reputation as an excellent producer.

In addition, Mr Gibbs said the Zespri brand is not necessarily representative of New Zealand produce with some 1400ha of orchards in nine countries also using the label.

However, Mr Franks explained the reasoning behind foreign produced Zespri fruit was to ensure the label and the brand it represents is available in markets 12 months of the year.

“In the modern retail age, it’s important to have product in stores all year.”

In an attempt to avoid a war of words, Zespri is saying little about the legal action led by Mr Gibbs.

Zespri corporate and grower services director Carol Ward said in a statement that T&G’s statement of claim was being considered in detail by legal advisors, but an initial analysis suggested it was entirely without merit, containing wilfully false allegations about the company, its growers, the industry and the regulations under which they operate.

Ms Ward said the company regarded the matter as before the courts and would not make any further comment.

Zespri has labelled the high court action as a publicity stunt.

Mr Franks disagreed.

“I don’t think it’s a publicity stunt. I understand his point and I guess there is merit to his argument,” he said.

He added that he was not qualified to provide an opinion on the legal aspects of Turners statement of claim.

“There is no appetite for change among growers,” Mr Franks said. “Controlled distribution works best for us. There are many around who still remember what it was like with multiple exporters… and they struggled.”

Mr Gibbs said talk that Turners wanted to destroy Zespri was rubbish.

“We just want to be able to export kiwifruit ourselves. [With deregulation,] any growers who want to supply Zespri, can.”

T&G accounts for 1% of the kiwifruit industry in New Zealand.

However, Mr Franks said any change in regulation that allowed Turners to export directly would be “opening the choke” to control over fruit volumes and premium prices would plummet.

The Claim
Turners & Growers claim that Zespri has abused its dominant position for the purpose of preserving its monopoly after deregulation by:

a. seeking to tie growers, suppliers and post harvest operators into exclusivity contracts;
b. attempting to take control of the supply of kiwifruit for export to Australia; and
c. attempting to take control of new kiwifruit cultivars

Further claims by Turners and Growers suggest Zespri has unlawfully discriminated among suppliers of kiwifruit by paying more for fruit supplied by growers who are prepared to sign exclusivity agreements with the company, in an improper attempt to preserve its monopoly power.

Zespri sells to more than 60 countries with Europe the biggest market taking 52.5 million trays each year.

Japan alone is a huge market munching through 16.4 million trays while the rest of Asia takes 18.4 million trays.

North America, who continue to drop the “fruit” off kiwi, buy 5.9 million trays.

New Zealand is the third bigger producer of kiwifruit in the world, trailing behind China and Italy. However, New Zealand has an opposing growing season and can hit the markets when the northern hemisphere isn’t producing.

Chile, which produces 10% of the world’s kiwifruit is New Zealand’s biggest competition with a similar growing season.

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3 Comments & Questions

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If T & G get their way for the small selfish reason that they think they will make more money for themselves, and to hell with everyione else, that is a relly poor outcome of this action.
Certainly Zespri have had a degree of dominant behaviour in some parts of the world, and an attitude that they know best. They would be wise to be a little more open in their approach, a bit more Collaborative in thier dealings with other marketers. This would take some of the angst out of this issue.
But lets not destroy the whole business in the process as deregulation would do.
The wine marketeers are not doing all that crash hot these days by the way Mr Gibbs. Some of the old hand predicts a huge fall out in vineyeard ownership as smaller players fail and thier operations are merged with others or closed down

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Monopolies imposed by the state are bad economics and a remnant of a communist economic system that dominated much of NZ business life pre-1984.

Turners want to innovate with new varieties and better marketing initiatives, which will ultimately benefit NZ and the kiwifruit industry. Despite eliminating NZ based competition in overseas markets, Zespri still faces competition from overseas growers.

The Zespri monopoly is a Golden Goose for the few growers, but gives a poor economic outcome for other NZ citizens. Why should the Government of NZ continue to accord such a privilege?

Its about time this monopolistic dinosaur was sent to the economics museum.

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The single channel system gives Zespri complete control of the supply chain for (all) Zespri branded kiwifruit into its major markets. The system is unique and exclusively responsible for the success Zespri has had in developing the New Zealand kiwifruit industry over the past decade.

You do not have to go far for a direct comparison - the fragmented Chilean kiwifruit industry, a model for a deregulated supplier, is having a disastrous season in the face of weak maret demand and the strength of its major consolidated competitor.

The industry must decide whether it wants to retain (supply chain) control of its destiny via the single channel or abdicate that responsibility to its customers. The evidence as well as historical precedent (de-regulation of NZ's apple industry)suggests that it would be unwise indeed to choose the latter.

New Zealand has no comparative or competitive advantage in fruit supply to global markets - it is a first world nation at the opposite end of the planet to its major markets. Retaining its single channel status is the only way to simultaneously protect and add value to the industry in the longer term.

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