A bright future could be in store for NZ kiwifruit, thanks to a growing middle class abroad and consumer health trends. Photo / Supplied
A bright future could be in store for NZ kiwifruit, thanks to a growing middle class abroad and consumer health trends. Photo / Supplied
Zespri has a $500 million headache with fruit quality but if it gets on top of it there are bright global prospects for kiwifruit in the next five years, says Craigs Investment Partners.
In a research note, Craigs said quality costs for the 2022 growing season were around $500m -“illustrating the importance of addressing fruit quality issues quickly”.
But macro-level trends for the next five years included several consumer and consumption positives that supported kiwifruit sales, Craigs said.
A burgeoning global middle class would lead to increased disposable income and a willingness to try new and different foods.
Health and wellbeing, environmental sustainability, e-commerce and growth in global snacks were all trends that placed Zespri in a strong position as a healthy food brand.
The global fruit category was forecast to have a compound annual growth rate of 5.8 per cent over the next five years.
Demand for kiwifruit was strong and growing due to its taste and health benefits and because it was grown in a way that was good for the environment and orchard communities, Craigs said.
“There is significant headroom for growth with kiwifruit representing less than a one per cent share of the global fruit bowl.”
Craigs noted Zespri’s forecast of a lift in total New Zealand supply of export kiwifruit, from 164m trays in the 2022 season to 229m trays in 2027.
“This is equivalent to a 39 per cent increase in volume and includes commercial volumes of Zespri RubyRed from 2025.”
On the fruit quality issue that has dogged the 2022 export harvest season, Craigs said of longer-term concern than the estimated $500m costs hit was “the market impact ... and the effect on the Zespri brand”.
Zespri has attributed the quality shortfalls to the weather’s impact on fruit, making it softer and susceptible to storage and transport damage, and a severe shortage of labour in harvest and post-harvest operations due to the Covid hangover.
The company, the world’s largest marketer of kiwifruit, has with other industry leaders launched a seven-point quality action plan in response.
Craigs noted the supply of green or Hayward fruit was forecast to fall by five million trays to 55m trays in 2027-2028.
This was in part due to Zespri ringfencing 600ha of SunGold licence issue over the next three years - 200ha per year - to help green fruit growers cutover to gold fruit.
Craigs said this would have the benefit of increasing supply of the higher-value gold fruit, while a decrease in green fruit volume would help offset short-term supply chain and logistics challenges.
A reduction in green fruit supply would also benefit remaining green growers, in that a higher sale price for their fruit would help combat rising orchard costs.
Craigs expected 2022 marked a high point for SunGold fruit (Gold3) licence prices. The median price was $801,000 per hectare.
Weather impacts and a severe labour shortage hit kiwifruit quality in 2022. Photo / File
“We analysed a payback period of 5-6 years for Gold3 and calculated a price range per hectare of $432,000 to $742.5,000. We have used a mid-point value of $590,000/ha to estimate future sales of Gold3.
“While we haven’t revised our estimate for the 2023 (licence) auction, we expect the cutover (ringfenced) pool will be priced lower than the unrestricted pool.”
The auction is scheduled to be run in late April and early May.
“With the attractive economics of SunGold, we expect demand for the cutover pool will be high and both auctions to be fully subscribed.”
This year, licence bidding will change from closed tender to an ascending price open action.
The revised format aims to address grower concerns about price equity and transparency.
Zespri, entitled by legislation to export all New Zealand kiwifruit except to Australia, posted global net sales of $4.03 billion in 2021-2022, up 12 per cent on the previous season.
The Mount Maunganui-headquartered company has around 2800 New Zealand growers and 1500 contracted growers overseas. Less than 50 per cent of New Zealand growers are shareholders.
Craigs said this is an issue for industry alignment.
As the issuing of new shares was cumbersome, requiring a product disclosure statement each time, Zespri was likely to consider listing on the NZX in the second half of this year, becoming an NZX continuous issuer in the first half of next year.
“Having this mechanism in place will provide options for alignment such as the stapling of shares to future licence releases or to introduce a dividend investment plan,” Craigs said.
