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May 15, 2023

Zespri’s hopes for kiwifruit industry after economic storm

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Marketer Zespri sees the sun returning to the embattled blue chip export sector from next year. Photo / File

Never one to lose its marketing mojo for long, kiwifruit exporter Zespri is shaking off the horrors of the past two years as it gears up for a big rebound in volumes and the hoped-for debut of a new green variety.

Chief executive Dan Mathieson, who has just marked 20 years with the world's single biggest kiwifruit marketer, sounds confident the impact on the $4 billion revenue business of a collision of severe weather events, labour shortages and soaring fruit quality loss costs are in the rear-view mirror.

Zespri's 2022-2023 financial results reflect the damage from that perfect storm, every red-letter financial marker down on the previous year and grower returns gone south.

Mathieson's not suggesting the horizon's clear of challenges, but says the way the current export season is shaping - albeit with much smaller volumes than usual - with fruit quality on the mend and continuing strong consumer demand, the outlook is brightening.

"It's been a really difficult period for horticulture businesses throughout the world, and certainly for many in the primary sector, and that's played out in our results.

"It's really tough right now for growers, not just Zespri's, but around the world. There are all sorts of headwinds but we are continuing to see strong demand. As quality returns, and we have enough people [workforce], we are confident of being able to deliver much stronger returns to growers in the years ahead."

The Mount Maunganui-headquartered company, owned by 2800 current and former New Zealand growers, is expecting a "big" lift in crop volumes next year, with its five year plan to 2027-2028 still pretty much on track.

Its performance bears watching because it's entitled by statutory regulation to export all New Zealand kiwifruit - except to Australia.

"New Zealand supply volumes are expected to move ahead to the forecast of around 230 million trays by 2027-2028, and Northern Hemisphere supply locations are also forecast to double volumes during that period from 25 million trays this year," says Mathieson.

In 2022 Zespri exported 171m trays of New Zealand-grown fruit to 50 countries. This season, due to the various challenges, that number looks likely to shrink to around 136m trays.

Mathieson says Zespri's expecting more, and more regular, extreme weather events to punctuate its forecasting but "when we look at plants in the ground and returning to average yields over the past five years or so, we expect volumes to rebound quite quickly". The company reviews its 5 year plan in October.

The cost to Zespri of fruit quality shortfalls carved $534m off what was available to pay growers in the 2022-2023 financial year. ($307m the previous year). Those "quality costs" are onshore and offshore fruit losses and claims from customers. Much of the cost pain was generated in Europe, which took a lot more early New Zealand season fruit than usual due to China's Covid market access issues but Mathieson says all major markets were affected.

With 15 per cent of this year's export harvest so far delivered and after visiting customers in all Zespri's major markets, Mathieson says the quality issue looks to be coming under control.

The industry which united in 2010 to rebound from the devastating incursion of bacterial vine disease Psa, has shown a similar resolve over the fruit quality problem, rallying to support a pan-industry "quality action plan".

Having to handle a much smaller harvest than usual has helped - green fruit volumes are the lowest in 20 years and the SunGold crop (the variety that replaced the gold fruit class wiped out in 2010) has fallen for the first time since it was commercialised.

Mathieson says he had "really encouraging" feedback on this year's quality from markets he visited and the action plan "has put us in a much stronger position this year than last year".

He says it's too early to forecast quality costs this financial year.

"We’ve got the rest of the season to get through and it's been a tough growing season. But so far it's tracking significantly better than last year. Most of our quality metrics have us back where we were in 2019 and 2020."

He says labour supply isn't a significant issue now with seasonal workers allowed back into the country and backpackers returning post-Covid barriers. Last season the industry was up to 7000 workers short, a major cause of the fruit quality problems.

Grower advocate New Zealand Kiwifruit Growers Inc agrees the volumes forecast inspires hope.

Chief executive Colin Bond says "many growers are under severe financial pressure".

"Nevertheless, kiwifruit growers are resilient and the volumes forecast for the coming years are promising. With careful management, these volumes may provide growers some respite. The success of our production is important not only for our growers, but for the economic contribution our industry brings to the people and their businesses where kiwifruit is grown."

Green variety growers, some uneasy about their returns from Zespri even before the recent turbulence, didn't fare well in the latest financial year reckoning.

They received a per tray payment from Zespri of $5.78 compared to $6.35 per tray the previous year. Per hectare, this return translated to $57,636 compared to $75,494 in FY2021-2022. (Sungold growers got $9.97 a tray compared to $11.51 the previous year. Per hectare, gold fruit growers received $137,524, against $176,026 in 2022.)

Given inflation-fuelled orchard costs, offshore supply chain costs and the dollar bite of the fruit quality issue, more red ink would have confronted many green growers.

Mathieson and Zespri's board of directors are in no doubt about the angst in the green grower sector, long a cornerstone of the kiwifruit export economy.

"All growers have been doing it tough and green growers have certainly had a very challenging two years and a lot of reduction in their returns due to significant quality costs and the ongoing rise in costs," says Singapore-based Mathieson.

"Up until two years ago it normally cost about $1 a tray to get [green] kiwifruit into major markets...that dollar has moved up to $2. Last year the quality cost for green growers was $2.60 per tray.

"If we really focus to get that back down to $1 .... we think there is a strong opportunity, as we get quality costs back under control and [orchard] costs settle to some extent, to significantly improve green returns."

Mathieson says not only green growers were hard hit by the quality cost issue.

For growers of the best-seller SunGold, the cost last financial year was around $3.60 a tray. "In a good year that’d be $1 to $1.50. It was a similar story for organics, the quality costs were at record high levels."

Growers of the current staple green Hayward variety aren't required to buy a growing licence from Zespri, like those who grow SunGold, organic and the recently commercialised RubyRed varieties.

While the New Zealand industry was built on the green Hayward variety and it's popular with consumers and prized for its proven nutritional benefits and storage strengths, Zespri says it doesn't deliver much of a price margin because plenty of other countries grow green fruit.

New Zealand-developed Zespri SunGold is a premium-priced best seller because it's a unique, high-yield, sweet variety proving to grow well outside of the traditional Bay of Plenty kiwifruit stronghold.

That's what sector leaders say is needed. A new, likely sweeter, green variety New Zealand can claim as its own that grows well outside the Bay of Plenty.

Mathieson says a commercial answer may not be far off.

"We are looking at new varieties that can grow in warmer climates [in line with climate change] and at a number of green varieties in particular that will be able to produce much higher yields for growers in warmer climates.

"There's still a fair bit of testing to go but early indications are that there will be a variety available for growers by 2026-2027," he says.

"Certainly we are focused on trying to make a new green variety available for growers."

Meanwhile, he says Zespri's challenges in the next five years aren't confined to the spectre of extreme weather events.

"With record high inflation [global] consumers are becoming more and more discerning what they put in the supermarket trolley. It's a big opportunity for us to continue to ensure our brand and the value of our kiwifruit is front and centre for customers when they make those buying decisions."

Judging by the rise in supermarket prices for kiwifruit back home, Mathieson's view that the consumer response will be "a big challenge for us" is understandable.

"We are seeing a real shortage of fruit around the world. Not just kiwifruit but across fresh produce in general. A number of big horticulture companies are really challenged by climate events in the past couple of years, to produce enough fruit to meet demand.

"As a result we see prices go up. There's just not enough supply to meet demand. We’ve seen that particularly this year with our volumes."

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