Deregulation would be bad for kiwifruit growers

OVER THE FENCE - BY JON MORGAN

OPINION: Certain would-be tycoons and ideologues are trying to talk the Government into deregulating the $1 billion kiwifruit industry. That would be an unmitigated disaster for kiwifruit growers and their highly successful exporter, Zespri.

It is in Kiwis' best interests to have a strong kiwifruit industry centred on one exporter. Growers spend their earnings on improving their businesses, building new packhouses, planting new vines, employing more workers. The economy benefits.

Growers who struggle put off such expense, reduce their plantings and need fewer staff. This will happen if deregulators get their way. They will open up lucrative markets to competition and ruin years of carefully planned and implemented strategies.

It makes no sense for Kiwis to squabble among themselves in overseas markets. Better to unite our marketing power in as strong an organisation as we can muster.

Zespri is a shining light that other agriculture and horticulture industries can only admire. Fonterra is as close to it as we get elsewhere and look at how valuable that is to the economy. Meat, wool and apple growers wish they were as well organised.

The deregulators would love to get their hands on gold kiwifruit. Zespri has adroitly controlled this fruit, after it was developed by Kiwi scientists. It has carefully inserted it into the market and backed it with powerful promotion. And then as demand has risen, it has controlled the supply by restricting growers' numbers. The profits have all gone back to the growers, typical hardworking Kiwis.

The growers, through Zespri, are price-makers. Open markets up to competition among exporters and this dynamic will reverse. The retailers - large supermarket chains - will become the pricemakers. The growers will have to take the price they are given.

The jewel in Zespri's crown is the Japanese market. The Japanese love fresh fruit and they have taken to kiwifruit in a big way. Zespri works hard to control the supply, demanding high standards of fruit quality from its growers.

In a deregulated industry, Japan will be the main target. It will be a bloodbath. Exporters will compete with each other to sell fruit and the supermarkets will be able to play one off against the other. This practice will quickly spread to the United States and Europe and returns will plummet. Before long, the New Zealand industry's reputation for high quality will be in tatters and we will have fallen to the very ordinary levels of Chile and Italy.

It's an illustration of the paucity of their argument that the pro- deregulators bring up the apple industry as an example of the benefits of an open export market.

The apple industry was deregulated because some growers were dissatisfied with the marketing strategies of their organisation. They successfully lobbied the Government for change. There's no similar mood among kiwifruit growers.

After apple deregulation in 2001, there was some initial market growth, but by 2005 the number of exporters had rapidly exploded and prices collapsed. Since then, exporter numbers have reduced, but growers have struggled to make a decent living. They have cut down trees and planted new varieties, but the upshot is the industry is 15 per cent to 20 per cent smaller than before deregulation, while returns have stagnated.

The behaviour of exporters is uncontrolled. I have been told of one who supplies apples to eight importers into Europe, who all supply just three retailers.

This is not just a New Zealand problem. All fruit-growing countries are deregulated and their growers are price-takers. Cheaper fruit is the result, and for shoppers that should be a good thing. But it is not good if the people who grow the fruit are forced out of business.

The European market is an example of how the apple market has collapsed. Fifteen years ago, the average sale price of New Zealand apples was [Euro]20 (NZ$40) a carton. In the last eight years, that has been equalled in only one year. More often, it is down to [Euro]15 and in 2005 it was down to zero.

Kiwi growers have had to seek efficiencies, even though costs have risen, but there is a limit. Meanwhile, retailers demand cheaper and cheaper fruit.

The industry fears a worldwide reckoning will come, when so many growers will be forced out of business that supply will drop and prices will have to rise.

It won't be pretty. What will happen to New Zealand, with its emphasis on the quality end of the market, is hard to say. Kiwifruit growers don't have to worry about this yet. An astute organisation works for them, controlling supply, maintaining quality, planning market strategies and avoiding pitfalls created by greed.

- © Fairfax NZ News