Zespri calm in China 'crisis'

For Zespri's chief executive Lain Jager, it was business as usual in China, until Zespri stopped shipments for a week earlier this month after it received a "warning notification." Photo / Jamie Troughton

On the surface, global kiwifruit marketer Zespri seemed to be running into trouble with the Chinese authorities - with attention recently switching to a so-called "trade war" and the appearance of a fungus on some exported fruit into China.

Tauranga-based Zespri, which operates a $2 billion business, remained calm and collected. For Zespri's chief executive Lain Jager, it was business as usual in China, one of its two biggest markets.

Zespri stopped shipments for a week earlier this month after it received a "warning notification" from China's General Administration of Quality Supervision, Inspection and Quarantine following the discovery of the fungus Neofabraea actinidiae in two containers of kiwifruit. The fungus causes fruit to rot in long term storage but it has no food safety implications.

Just before that, Zespri was implicated in a suggestion that China could retaliate against New Zealand's dairy and kiwifruit exporters in response to a potential investigation into alleged Chinese steel dumping in this country.

Jager says the fungus was a technical issue and in conjunction with the Ministry of Primary Industries (MPI) "we quickly developed a new inspection regime. The fungus is common, and literature searches show it is present in China but not on its kiwifruit.

"We have imposed high levels of checking to keep the fungus out of China, but there are very low levels of disorder in our fruit and I don't see it as too much of an issue. All the signs are that it is a normal market access issue."

Within the week, Zespri increased its exporting inspections - checking 200 kiwifruit in a packing line instead of 30 just before they are put in the container for shipping.

"The Chinese found some fungus and decided it's an issue, legitimately so," says Jager. "We worked with MPI and developed a new protocol."

On the supposed "trade war", Jager says "we have had assurances from both governments, China and New Zealand, that the issue with kiwifruit is technical and doesn't reflect on the relationship with the two countries. The trade implication was at a low-level officials' discussion.

Instead, Zespri is forging on to increase its exports and grow its presence in China, the world's largest producer of kiwifruit with 1.2 million tonnes annually, more than triple New Zealand's volume. All China's production is consumed domestically but Zespri expects China to start exporting within five years.

At present, Zespri produces 12.5 million trays a year in Italy, 240,000 trays in France, 350,000 trays in Japan and 650,000 trays in South Korea - a total of 13.7m trays. Photo / File Photo

Zespri expects to sell a record 135 million trays this year (including 84m Green and 45m of the new SunGold variety - up from 18m in 2014.

More than 20 million trays will be sent to the Chinese seaports of Tianjin, Shanghai and Guangzhou, while Japanese sales are predicted to near 22 million trays this year.

Now an 'importer of record' in China, Zespri is handling the movement of its fruit from the seaport to the consumer, instead of using on-the-ground distributors.

Jager says Zespri will be leasing its own coolstores in five regions of China and delivering free to our sales agents. "We import the fruit based on customers' orders rather than sit on own inventory. We do this in Europe and we have control of own quality in the marketplace, as well as providing a higher level of service."

Zespri has also started growing trials in China as part of its strategy to increase its all-year supply. The New Zealand-grown kiwifruit covers eight to nine months, and fruit is also grown in Italy, France, Japan and South Korea.

After signing a memorandum of understanding with the Shaanxi provincial government, Zespri is developing two 13 hectare orchards, first with Hayward green. "China has the richest source of kiwifruit varieties - green, gold and red - in the world," says Jager. "We are assessing different varieties and seeing whether we can grow them well over there to our (taste and storage) standard.

We have had assurances from both governments, China and New Zealand, that the issue with kiwifruit is technical and doesn't reflect on the relationship with the two countries.

Zespri's chief executive Lain Jager

"It takes four years for a kiwifruit vine to mature and we'll know within five years whether we can sell the fruit commercially from China. We want the best green, gold and red variety and we need to source them overseas, not just in New Zealand."

Jager says Zespri's presence in China is complementary rather than competitive. "We will partner with Chinese growers and supply premium kiwifruit into the domestic market, as we do in Italy. China and Italy are in the Northern Hemisphere; we are in the Southern. "I expect in due course China will export a bigger proportion of its kiwifruit and we have to seek profitable niches."

At present, Zespri produces 12.5 million trays a year in Italy, 240,000 trays in France, 350,000 trays in Japan and 650,000 trays in South Korea - a total of 13.7m trays (nearly 10m green and and 4m gold). The overseas production is expected to more than double to 31m trays (17m gold and 14m green).

Jager says Zespri is on track to produce a total of 160,000 trays (including 65,000-70,000 gold) by 2020 - from 110,000 trays in 2015. "Most of the growth will be gold, and our five-year plans see us earning $3 billion by 2020."

But there's more. Zespri predicts it will grow 200 million trays by 2025, producing impressive global revenue of $4.5 billion. "We can do this by marketing quality kiwifruit 12 months of the year and delivering sustainable results," says Jager. "It's preferable to have the brand on the shelves all year so it's recognised by consumers, and they don't get turned on and off at the start and end of the seasons."

Jager says the Psa bacteria disease is now endemic in all North Island growing regions, with Nelson and Motueka free of the disease. "Psa is not holding the industry back and Hayward Green and SunGold (or Gold3) are pretty tolerant.

"They perform very well in the Psa environment, thanks to excellent orchard management," says Jager. "Orchard practices have moved on - such as careful and hygienic pruning, good vine nutrition, spraying low levels of copper as a protectant before major weather events. The growers had no choice but to be proactive and have been successful in managing Psa. As a result they have seen increased productivity," he says.