China Business 2012: Government backing the key for kiwifruit firm

Aligning its business with Chinese Government plans is a key part of success, says Wellington-based GlobalHort New Zealand.

GlobalHort was set up in 2004 and owns two thirds of Global Horticulture Xi'an in China, which has contract suppliers, grows its own kiwifruit, and imports or buys other fruits locally to supply supermarkets nationwide.

The company plans to have 700ha of its own kiwifruit orchards and about 4000ha by contract growers planted during the next three to four years.

Company director and shareholder Craig Johnson says kiwifruit "was the ticket to the dance".

The company signed an agreement with the Shaanxi provincial government in 2005 and plans to handle 80,000 tonnes of kiwifruit in three to four years time, which is expected to grow thereafter. The agreement with the provincial government means it is the only foreign company the authorities will work with to try to help develop the kiwifruit industry.

Aggregating land in China without government support is next to impossible, Johnson says.

The Chinese Government had "basically said we'll put our hat on you guys in our province and [you] will be the horse that we'll ride with," Johnson says.

"Of course we've stuck to our end of the bargain and to be fair they've been very obliging and good and helpful in sticking to their end of the bargain as well."

The Chinese Government makes five-year plans.

"If you align yourself with them then it can be achieved," Johnson says. "We are improving the returns to the farmers, we are keeping employment out west and money out west... we are efficiently using water so we are aligned with the Chinese Government's five-year plan."

"If they want you there and you are being helpful to them they will be very helpful to you and things will happen very easily," he says.

"If they are neutral on you then if you are clever enough and smart enough and work hard enough you can make it happen, but if you're doing something they don't want, of course, then it would be nigh on impossible."

A strong relationship with a local partner can make life easier, Johnson says.

"We started out without [a partner] and worked alongside the local Chinese and got the company up and running and anyone could do that," he says.

The firm's Chinese partner brought capital to the business and had good relationships.

The company, which was in its second year of being profitable, is budgeting for $360 million of sales and $76 million of profit in 2016.

The company cannot own land in China but has 30-year leases.

"So we have control of the land which is all you need for farming and of course if the leases are [at] reasonable rates, [it's a] hell of a lot cheaper than buying it, otherwise you'd need more capital."

Patrick Watene, managing director of both the New Zealand and Chinese companies, used to work in the kiwifruit industry in New Zealand and one of his roles was dealing with dignitaries and delegations.

"[To] cut a long story short, the Chinese sort of said to him our industry's in a bit of a shambles, we've got tonnes of it but we don't do it anywhere near as well as you guys do; do you want to come and have a look at seeing what you could do to help us out?" Johnson says.

"So over he went and as long as we set up a model orchard, basically which was 100ha, up there they would make all sorts of things available as they can in China."

The company has raised close to $60 million from New Zealand investors.

"It's been a difficult process because New Zealand funds and institutions and banks have been not interested at all really and so it's only been just private capital from friends and family."

It had been an exciting journey, Johnson says. "I have been incredibly pleasantly surprised at the whole process and experience."

His wife and children have also visited China.

"All my children are now learning Chinese at secondary school and at university," he says.

"It wasn't even on my bucket list. If I didn't join this venture I probably never would have even gone there. It's been fantastic."