Making the case for open markets

In Tony Gibbs' submission to the Government, delivered this year, he uses the word "monopoly", or variations on it, 28 times in the first 14 pages. For him, it appears to be the most important noun in the English language, followed by "innovation" (five times) and "freedom" (three).

The document, Releasing the Economic Potential of the NZ Kiwifruit Industry, is an eloquent polemic, summarising Gibbs' sense of grievance, and a stirring argument for the benefits of untrammelled free markets.

By contrast, his statement of claim, filed in the High Court at Auckland on July 21, is - understandably - lacking in Gibbs' usual oratory. The word "monopoly", where a producer dictates price to the market, has been replaced by "monopsony" - where a sole buyer calls the shots.

More than 100 million trays of kiwifruit will be grown, harvested, processed and sold before Turners & Growers gets its day in court. A hearing date has yet to be set, and Gibbs hopes to have one by the middle of the year. It will be done and dusted, he predicts - perhaps optimistically - by the end of 2010.

In the statement of claim he accuses Zespri of misusing loyalty contracts with growers to unlawfully bolster its position to the detriment of other suppliers and exporters. Since March 2004 it has paid more than $60 million in loyalty premiums under the contracts, money that should be disbursed to all growers, Gibbs argues.

As well, he alleges, Zespri improperly spends growers' money developing new cultivars (nearly $50 million in the seven years to March) and sought to restrict competitors' ability to develop and exploit their own kiwifruit varieties. Zespri will not market other New Zealand cultivars unless the suppliers sign over marketing rights to the variety in question.

Spending more than $400 million buying foreign-produced fruit, Gibbs contends, is in breach of Zespri's rules restricting it to the core activity of buying, marketing and selling New Zealand produce.

Zespri, it is alleged, has conducted unjustifiable discrimination and acted unlawfully, in breach of its obligations to growers. Further, its governing regulations contradict competition laws as set out in the Commerce Act and Bill of Rights.

Gibbs seeks to have the Kiwifruit Export Regulations declared "ultra vires" and "void for repugnancy" - in other words, incompatible with overriding legislation such as the Commerce Act.

There is legal precedent for Gibbs' argument. "Regulations are made by the executive branch of Government, with authority delegated to it by Parliament," explains Mark Williamson, a competition specialist at DLA Phillips Fox. "It follows that regulations cannot overrule the will of Parliament.

"Courts in previous cases about regulations have said that 'a regulation may not permit that which a statute expressly forbids'."

But, Williamson notes, the court will also take account of the scope of power for Government to make regulations which specifically grant Zespri permission to restrict exports, and what effect an export limit has on "the long-term interests of New Zealand consumers". The Commerce Act is designed to protect Kiwis, not foreign markets.