Kiwifruit dumped to prop up price
Kiwifruit growers, hit hard by a global slump in demand, are destroying a million trays of their fruit.
Details of the dumping are outlined in a letter from the industry's export marketer, Zespri, to 3000 New Zealand growers late last month allocating them their quota to be destroyed.
The dumping has to be done over the next two months, and more looks likely unless the recession eases next year, say the chief executives of listed kiwifruit companies Satara, Wes Anderson Smith and Seeka's Michael Franks.
Zespri chief executive Lain Jager said in the letter that the alternative would be a reduction in value of about 20c a tray. There was too much stock in the market eventually needing to be written off as fruit loss. The average return last season was $3.63 a tray.
Gold fruit is not affected.
Even as it stands, the domestic market could become saturated as plans by Zespri will leave an extra 500,000 trays still needing to be sold. This could cause a collapse in the price a boon to customers looking for cheap and healthy fruit, Mr Anderson Smith said.
Further destruction of green fruit could not be ruled out in the present economic climate, particularly as volumes were forecast to rise by 5 per cent above this season's output next year, he said.
The green fruit global export category grew by more than 10 million trays in the 2007 and 2008 season, Mr Jager told growers in outlining why Zespri needed their support.
He said 2.5 million trays needed to be managed out of the country's inventory. Zespri told growers to destroy one million trays of class two fruit, at present exported to Australia directly by suppliers as Australia is outside Zespri's control under the closer economic relations agreement.
The dumping plan came after negotiations with some of the major kiwifruit players and an agreement to a 30c per tray compensation payment out of grower return funds.
Zespri's plan will keep as much of the premier class one fruit in the market as possible at the expense of class two.
Growers would set aside 1.5 million trays of large green class one kiwifruit for suppliers to export to Australia, Zespri said.
As a result, exports to Australia about 4 million trays a year will have the number one premium grade in the mix for the first time.
Mr Smith said it was still too early to tell whether growers would receive a higher price from Australia for the top grade fruit as it depended on market demand.
Direct exports to Australia are regulated by Australia's Horticulture Export Authority.
After the dumping to be done in May and June, there will still be an excess 500,000 trays of green fruit for absorption into the New Zealand domestic market.
Mr Smith said this did raise the possibility of a glut and price collapse but would be good news for consumers because domestic green kiwifruit supply was largely class three and the new excess stock would be premier grade.
It is also likely some growers will destroy some of their grade 3 fruit and replace it with grade 2 for domestic sales to try to keep their margins up in tough times.