Kiwifruit battle heats up

TONY WALL
Last updated 05:00 23/03/2014

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It was an audacious, some might say outrageous, plan. Raise a quarter of a billion dollars from Chinese investors, buy up Psa-ravaged kiwifruit orchards at bargain basement prices, set up a deal with a giant Chinese food distributor, and watch the profits pour in.

The scheme was thwarted, however, when a source nicknamed "Deep Throat" warned Zespri, the industry's monopoly exporter, that all was not what it seemed.

The China deal - which involved a double Olympic gold medallist, a property developer and some Chinese businessmen - reads like a thriller but was just the latest attempt to cash in on the enormous value New Zealand kiwifruit has in offshore markets, grower groups say.

A small minority of growers want to break from Zespri because they believe they can make more money on their own. But most say that would be a disaster, that the single desk marketing model has grown the industry into a $1b success story and the industry would have collapsed under the Psa incursion without a united front.

Zespri's opponents have had plenty of ammunition recently, with the launch of a Serious Fraud Office probe into the company's customs dealings in China which led to an importer being jailed for 13 years and one of its own employees for five.

Fairfax Media revealed last week that fruit exporter John Thompson, the new president of the Act party, has taken copies of articles about the SFO probe to meetings with Ministry of Primary Industries officials in an effort to convince them that Zespri is tainted and has lost trust in China.

Thompson is lobbying for a duopoly exporting structure, with one other company - his own - having export rights. Industry sources say he and his associates would make tens of millions of dollars in commission if the proposal went ahead.

Thompson, who wants to work with Shanghai Neuhof Trade, the company at the centre of the smuggling debacle, says Zespri had "continually abused its privileged [monopoly] position" and a duopoly would give growers more choice and transparency.

Ross Bawden, the president of the Te Puke Fruitgrowers Association, says the party should stop its attacks on the single desk set-up.

He was in the forestry industry for 20 years, "and I can only dream of how better off individual forest owners would have been with a Zespri-like export structure".

Bawden wrote to Act's primary industries spokesman, Don Nicolson, recently, saying Act stood for "personal greed rather than personal freedom".

T HE CHINA export proposal is being described as a bold takeover attempt.

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Documents show that the China New Zealand Kiwifruit Investment Company (CNZK) planned to raise $250m and buy 1000 hectares of green kiwifruit orchards directly from banks or from "distressed" sellers.

Zespri owns the rights to all kiwifruit cultivars except for a gold variety known as Y356, which CNZK controls. The plan was to graft Y356 cultivars, which the company claimed were the "most resilient to Psa", on to existing diseased rootstock and convert "marginal green kiwifruit orchards into high profit gold kiwifruit orchards", according to a prospectus given to Chinese investors. Y356 would be rebranded "Liquid Gold".

CNZK claimed to have negotiated a supply contract with the state-owned Chinese food distribution giant Cofco, which had supposedly ordered 138 million trays of Y356 worth $2.9 billion over the next 10 years. The group claimed its profits over the next decade would be $1.6 billion.

The directors of CNZK are Olympic gold medallist Simon Dickie, a large grower and Zespri shareholder, South Island property developer Bob Robertson, Palmerston North businessman Steven Gong and Shijun Zhang of Hamilton, who was to act as a go-between with the Chinese.

In order for the deal to proceed, CNZK would have needed a collaborative marketing agreement from Kiwifruit NZ, the industry's regulatory body, so that it could export in collaboration with Zespri.

The Star-Times understands that even before Dickie and his partners approached Zespri for a series of meetings last year, Zespri was fed information by sources, including one it called "Deep Throat", that cast doubt on the veracity of some of CNZK's claims.

The sources said one of the major beneficiaries of the deal would be a Chinese company called Shanghai Shuibei Industrial, a 33 per cent owner of CNZK, and characterised the proposal as a "Chinese takeover of the industry".

The Cofco representative who came to New Zealand to meet Zespri officials was a mid-level manager in its tomato sauce division who was using Cofco letterheads to give the impression the deal had been signed off at the highest levels, the sources said. That employee was also linked to Shanghai Shuibei.

"Deep Throat" cast doubt over Cofco order forms as they were initially drawn up in New Zealand dollars instead of US dollars. The source claimed the consortium's main goal was to gain an agency agreement with Zespri so it could list on the Hong Kong stock exchange.

The Star-Times has obtained a commission agreement, drawn up by Bell Gully, which states that Cofco would pay CNZK a one-off payment of $1m, plus a commission of $US2 a tray if the deal went ahead.

Zespri says it met with the Cofco employee but wanted to dig deeper so arranged its own meetings with Cofco's chairman.

"From those high-level meetings we gained enough confidence and understanding to know that Cofco's senior management did not appear to have any specific interest in Zespri or the New Zealand kiwifruit industry," a spokesperson says.

Zespri confirms it was tipped off by "a number of sources" and the information provided "helped Zespri make sense of the . . . claims being made".

The proposal was always flawed, Zespri says, given it relied on a large number of orchards being available at "bargain basement prices" and that these would then be grafted to what it viewed as an unproven plant variety.

Dickie says he is at a "sensitive stage" as he is selling his kiwifruit orchards and is limited in what he can say. But he laughed off suggestions the proposed deal amounted to an attempted Chinese takeover of the kiwifruit industry.

He backed away from claims that Y356 was Psa-resistant, saying all varieties were susceptible in different circumstances. The variety's main point of difference was that it bore fruit earlier in the season than other varieties, which made it valuable in certain markets. Dickie says he can't comment on the claims made in CNZK's prospectus because he was not involved in drawing it up.

"What I can say is there is an insatiable market in Asia for New Zealand kiwifruit, we have to strive to supply bigger volumes over a longer period. Doing business with the Chinese is based around relationships. I have very good relationships in China. Zespri is somewhat guarded about the relationships it has there."

Robertson stuck by the claim that Y356 is the most Psa-tolerant of the kiwifruit varieties. He says his group had an order from Cofco to take more than $2.5b of fruit over 10 years but it became apparent that they were "beating our head against a brick wall" in talks with Zespri.

"The problem is the policeman, Kiwifruit NZ, was really under the control it seemed to us of Zespri, so it was hard to get a reasonable ruling. It could have been other political agendas within Zespri."

Robertson wrote to Economic Development Minister Steven Joyce and Trade Minister Tim Groser last year saying Zespri had "inexplicably" declined his company's China deal and asking for them to intervene on an upcoming trade delegation there.

Robertson wrote that Zespri had been found guilty of criminal offending in China, had become corrupt and was "allowing its highest paid employees to enrich themselves at the expense of growers".

He received only an automated reply from Joyce's office, which was "disappointing".

Despite the best efforts of its coalition partner, Act, the National-led Government says it has no plans to change regulations governing kiwifruit exports.

"The industry belongs to kiwifruit growers and the majority of growers support the single seller model," Primary Industries Minister Nathan Guy says.

Robertson insists the Cofco representative he was dealing with was at the "highest levels" of the company and Cofco was genuinely interested in the deal.

"We just decided New Zealand's too hard, so we're going to take our cultivar and the money we have and grow offshore."

Zespri's chairman, Peter McBride, says there are a number of "disenfranchised growers working to destabilise the industry" but they were damaging it. "The industry is characterised by transparency, very robust debate and a high degree of co-operation, and the covert campaigns being run are counter to these long-held characteristics."

THE INDUSTRY

Kiwifruit is the second biggest horticultural industry, behind wine, with earnings of around $1bn. Under kiwifruit exports regulations, Zespri has exclusive rights everywhere except Australia. Growers can apply to Kiwifruit NZ, the regulatory body, for a collaborative marketing agreement to export in conjunction with Zespri. Since 2008-09, Zespri has supported 86 per cent of CMA applications, while KNZ has approved 94 per cent. Earnings are expected to drop to about $920m this year because of Psa, but green kiwifruit returns are at record levels. Orchards have also regained their value since Psa.

- Sunday Star Times

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