Monday, February 26, 2024

New report gives Zespri tick for sector value

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‘Single point of entry’ model confounds expectations to deliver returns.
NZKGI CEO Colin Bond says the recent Green growers forum highlighted how boosting in-orchard productivity offers one route for growers with lower than average yields to lift their profitability.
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The single point of entry model for kiwifruit through Zespri appears to have broken from economic convention, based on a recent report assessing the marketer’s effectiveness.

New Zealand Kiwifruit Growers (NZKGI) commissioned economic analysts BERL to assess Zespri’s success on behalf of growers, eight years after growers overwhelmingly voted in favour of retaining the single point of entry (SPE) marketer.

The report authors note that typically a monopsony, or single desk buyer, can tend to be inefficient in several areas. That includes having less flexibility, lower levels of innovation and being difficult to assess for their true cost effectiveness in the absence of any purchasing competition. 

But the report on Zespri says the marketer has broken the mould on single desk outcomes, delivering a strong international brand that has drawn in significant income for NZ kiwifruit growers and post-harvest processors.

For growers and regions with the fruit, the outcome of the SPE has proven to be highly valuable.

The report compares kiwifruit’s gain in value as a crop over the years to the less-regulated apple industry. 

Between 2015 and 2019, apples’ orchard gate returns increased from $43,600 per hectare to $49,000 per hectare. 

Kiwifruit outpaced apples by 64% over the same period, enjoying an increase from $60,800 per hectare to $107,100 per hectare, peaking at $124,000 a hectare in 2021-22.

This was also reflected in orchard value, with kiwifruit orchards worth $928,700 per hectare against $275,300 per hectare for apples.

The report’s authors note that the two crops earned similar export returns back in 2000, and that kiwifruit retained its single point of entry while the apple sector took an open, laissez faire approach to marketing. 

Over the past 23 years kiwifruit export receipts have grown at twice the rate of export volumes.

Overall, the report estimates the Zespri “brand” has generated premiums on Gold and Green kiwifruit of 10-20% higher than competing varieties internationally.

Other benefits alongside the revenue gains have included the investment in promotion of over $1 billion since 2017, and $180 million in innovation. 

The marketer’s chartered shipping programme was also highlighted for its ability to retain supply certainty during a period of major global shipping upheaval.

However, the report does not deliver only bouquets in its assessment of Zespri’s performance. 

The authors say that Zespri’s ownership of plant variety rights to Gold3 has led to a barrier to entry for growers unable to raise the cash to purchase the rights. The current licence value for SunGold kiwifruit is about $801,000 a hectare. 

The high entry price is a particular challenge for iwi orchard owners who may struggle to gain bank loans when borrowing against whenua Māori.

NZKGI CEO Colin Bond said another limiting factor is that the producer votes required to be undertaken by growers to decide on important industry decisions can restrict Zespri’s ability to respond rapidly to changing market conditions. 

Evidence of this lies in the conundrum Zespri finds itself in with China, where the area of illegally grown SunGold kiwifruit exceeds that planted legally in NZ. 

Eighteen months ago, Zespri sought grower approval to enable it to work with the Chinese growers, incorporating their fruit into a trial marketing programme. 

However, this was defeated by a narrow margin that required 75% grower support and obtained only 70%. 

Meantime the area in illegal SunGold fruit has continued to grow.

The report notes that discussion on deregulating the SPE has come up but notes the efficiency gains from deregulation are minimal compared to the value of the total payments growers receive. It notes that Zespri’s scale continues to allow for significant investment in innovation, cultivars and marketing campaigns, maintaining business activities in the best interest of NZ kiwifruit growers.

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