Kiwifruit monopoly comes under fire

Tony Gibbs

Listed fresh produce company Turners & Growers has formally called on the Government to strip kiwifruit exporter Zespri of its $800-million-a-year export monopoly status, citing abuses of market power and the potential loss of export and R&D investment dollars if it is allowed to continue.

Turners & Growers, headed by Guinness Peat Group's Tony Gibbs, has sent a "position paper" and an independent economic report to ministers and party leaders, arguing it is time to allow competition "to release the potential of the kiwifruit industry".

The paper says New Zealand faces increasing competition from other countries in its markets and to survive the industry needs investment and innovation from additional players.

It alleges Zespri, which controls all kiwifruit exports to countries other than Australia, is abusing its dominant position to prepare for anticipated deregulation, developing a "war chest" and having growers and industry players sign contracts that will bind them to supply Zespri after.

The need for extra investment in R&D is also the main message of an accompanying economic report by NERA Economic Consulting. NERA said R&D investment was "very important" in the fast-evolving kiwifruit business, with New Zealand's competitors investing heavily across a number of new varieties of green, yellow and red kiwifruit.

NERA estimated the value of the annual benefits to growers of the "gold" fruit innovation as $206.9 million to date, and around $200 million a year over the next 10 years.

"To maximise the prospects of repeating such gains and to compete with overseas R&D, it is our view that the Zespri regulated monopoly needs to be removed," said NERA. "We recognise that 'gold' kiwifruit was developed by Zespri, but our point is that dynamic gains of this magnitude are more likely to occur if Zespri is deregulated, so that a variety of commercial strategies can be employed."

NERA said the monopoly meant growers were tied to one commercial strategy beyond the orchard gate, and would find it difficult to measure Zespri's productive and dynamic performance.

Its monopoly status was also likely to reduce other companies' R&D in New Zealand because they could not extract the value-added benefits of their investment, NERA said. The consultancy estimated annual gains of $5.3 million from efficiency gains from deregulation pressure on Zespri to cut its own costs.

The Gibbs-led assault on Zespri's monopoly is not unexpected. He told shareholders at the recent T&G annual meeting that their company, responsible for 25 per cent of kiwifruit exports, was being blocked from export opportunities in "disgraceful protectionist action".

He said the final straw for T&G was having several applications for collaborative exporting deals with Zespri rejected this year while the Mt Maunganui-based monopoly called on growers to destroy 2.5 million trays of fruit to prop up prices in the global recession.

"We said we could get rid of this fruit in Mexico and elsewhere. They declined us, we went to appeal, and got declined again," Gibbs said. "The fact is we have plant varietal rights for green and early summer kiwifruit in New Zealand and we've got a gold kiwifruit which is as good if not better than theirs. We have red fruit.

"New Zealand wants to grow these exciting varieties, T&G wants to export them, major overseas supermarkets want to sell them and overseas consumers want to eat them. Zespri says if we want to do this we have to hand these varieties over to them virtually exclusively."

NERA noted that New Zealand's share of world kiwifruit exports by volume had fallen from 54 per cent in 1990 to 29 per cent in 2006.

Gibbs, who led the overthrow in 2002 of the Apple and Pear Board and merged its marketing arm ENZA with T&G, said Zespri as the dominant player should be able to withstand competition as dairy giant Fonterra and ENZA had done.

ZESPRI: A BIG PLAYER

* Corporatised in April 2000.
* Formerly the Kiwifruit Marketing Board.
* Owned by 2800 growers.