Kiwifruit NZ to announce decision

By David Porter

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Seeka CEO Michael Franks awaits Kiwifruit NZ's decision on the appeal of a rejected collaborative marketing application.
Seeka CEO Michael Franks awaits Kiwifruit NZ's decision on the appeal of a rejected collaborative marketing application.

Kiwifruit NZ will announce on Friday its decision on the appeal over two rejected collaborative marketing applications, which the regulator reheard on Monday.

Seeka CEO Michael Franks.
Seeka CEO Michael Franks.

The appeal was ordered last week by the High Court in Tauranga, after it fast-tracked a judicial review.

The court's findings are considered by industry sources to have significant implications for collaborative marketing (see story below).

When Zespri was set up, the Government made it the sole entity entitled to export kiwifruit to anywhere other than Australia, but allowed for collaborative marketing, under which third parties can seek approval from the Kiwifruit NZ (KNZ) board to export in association with Zespri.

Collaborative marketing is a key area being looked at in a Ministry for Primary Industries kiwifruit sector review.

KNZ chief executive Geoff Morgan confirmed the appeal hearings had finished and said the regulator was now considering its decision.

"We cannot comment at this time," he said.

The issue has its origins in applications brought late last year by two Te Puke-based fruit exporters and marketers, NZX-listed Seeka Kiwifruit Industries, one of the country's leading kiwifruit growers and post-harvest operators, and Splice Fruit, owed by Peter Luxton, who has a long track record in the sector.

Both companies have had successful collaborative marketing agreements with Zespri.

Seeka wanted to export 400,000 trays of Green fruit to Hainan Island in China and 120,000 trays of Green fruit to Xinjiang province in China.

Splice wanted to export 400,000 trays of Green Organic fruit to Austria. Decisions on all three applications were made by KNZ on December 22 last year, for reasons given in writing on January 21. All three proposals were rejected.

The applicants claimed the KNZ board acted unreasonably in rejecting their applications.

The rationale for rejecting Splice's proposal was that it wasn't entirely consistent with Zespri's marketing strategy of creating brand value and premium returns to New Zealand suppliers, and didn't meet the test of creating overall wealth.

In the Seeka cases, it was considered there was a danger that the fruit destined for Hainan Island could "leak" into mainland China and create confusion and disruption in a large market, which could depress prices.

For Xinjiang, Zespri said it was worried selling under the Seeka brand would lead to a substitution risk for Zespri-branded programmes.

It was past practice for the KNZ board to allow an internal appeals process. However, citing new legal advice received late last year, the board said it was no longer able to hear appeals, which prompted the applicants to seek the High Court judicial review of KNZ's process, with Zespri as second defendant.

A fast-tracked court hearing was held because the 2016 season is already under way.

Seeka chief executive Michael Franks said he could not comment on the specifics of the applications until the appeal decision was announced.

A Zespri spokesperson said KNZ was responsible for approving collaborative marketing applications. "Zespri welcomes the clear guidelines provided by the court to inform this process in future."

Kiwifruit NZ:

* Kiwifruit New Zealand is the regulatory body of the kiwifruit industry, established when Zespri was created as the mandated primary exporting arm of the industry in 1999.

Judicial review findings clarify KNZ's role

High Court Justice Paul Heath noted that when Zespri was created as a separate export company in 1999, regulatory functions were transferred to Kiwifruit NZ.

"Those functions were designed to monitor and enforce various provisions designed to minimise the risk that Zespri would abuse its privileged position in the market, and to safeguard the overall economic interests of all kiwifruit suppliers."

Significant findings in the judicial review included Justice Heath's declaration that it was lawful for KNZ to review any decision reached by a collaborative marketing committee.

After receiving legal advice in November 2015, KNZ said it could no longer accept appeals on its decisions.

Justice Heath declared that KNZ's "appeal" process gave its board the power to review any decision reached by a collaborative marketing committee.

Another key finding was that the onus for establishing the viability of a proposed collaborative marketing did not fall solely on the applicant.

Justice Heath noted KNZ was undertaking an independent inquiry to determine whether the proposal had the purpose of increasing "the overall wealth of New Zealand kiwifruit suppliers".

The need for independent appraisal could be seen from KNZ's ability to make suggestions to an applicant about changes to improve the prospects of approval.

"In these circumstances, I conclude that there is no onus on an applicant to satisfy the board that a proposed collaborative marketing arrangement should be approved."

Another key issue was pre-application consultation with Zespri. Industry sources have expressed frustration with a process in which Zespri has been able to say that applicants have failed to collaborate in establishing the need for a programme.

Justice Heath found that the purpose of the collaborative marketing regime was to allow the board to "compel Zespri to enter into an arrangement if it were satisfied that the purpose is to increase the wealth of New Zealand kiwifruit suppliers".

"Collaboration is ... not a factor to be taken into account in determining whether approval should be given."

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