Zespri’s near-monopoly on kiwifruit exporting gets tick in economic report

The "single-desk" exporting statutory right awarded to Zespri is unique in the global fruit market.

Kiwifruit marketer Zespri has spent more than $1 billion on promotion in the past six years, a new report on its export dominance shows.

The report by economic consultancy Berl was commissioned and funded by grower advocate New Zealand Kiwifruit Growers Inc (NZKGI) and concludes the “single desk” or regulated right of Zespri to export all this country’s kiwifruit, except to Australia, had been used strategically by Zespri to build an international brand that had drawn significant income to growers and post-harvest suppliers.

The report said the “certainty” provided to the industry by the single-desk structure had resulted in grower-owned Zespri becoming big enough that it could make significant investments in promotion and research and development.

It said Zespri had spent close to $179 million on innovation and $14.3m on vine health since 2017.

NZKGI said the report was commissioned to explain the single desk to new growers. The Herald understands the document also served as an industry briefing for the new Government.

NZKGI said the report found the single desk had created a brand that can manage kiwifruit quality and quantity to deliver high returns to growers.

NZKGI CEO Colin Bond said: “It is reassuring for our growers that this report recognises the value that the SPE (single desk) has brought the New Zealand kiwifruit industry over the last 24 years. Growers have long supported the SPE as a cornerstone of the success [of] our industry, and the independent report we have commissioned continues to back this.”

New Zealand Kiwifruit Growers Incorporated chief executive Colin Bond. Photo / Quinn O'Connell

The report found Zespri-marketed green and SunGold kiwifruit draws a 10-20 per cent higher price than competing varieties in international markets, he said. Further, while the volume of kiwifruit exported had increased 299 per cent since 2000, export receipts had outpaced volume, increasing 571 per cent.

The growth of the value of the kiwifruit and apple industries were also compared, assessing growers’ net income (orchard gate return), Bond said. The report found that while apple growers’ OGR had increased from $43,600 to $49,000 per hectare between 2015 and 2019, kiwifruit OGR had outpaced apples by 64 per cent, increasing from $60,800 to $107,100/ha during the same period. In terms of capital, 2020 data found sampled kiwifruit orchards were substantially more valuable, and hence profitable, at $928,700/ha than the sampled apple orchards at $275,300/ha, he said

Bond noted while the report was favourable towards the SPE, it did find some limiting factors, such as the potential to disadvantage smaller groups of growers. Such issues may occur when a set of rules are created under the SPE.

“One example is the mechanism used to acquire a licence to grow SunGold kiwifruit. The tender can be prohibitive to those who do not have sufficient capital.”

Another noted barrier of the SPE was that the producer votes required to be undertaken by growers to decide on important industry decisions may restrict a rapid reaction by Zespri to respond to changing market conditions.

There was also a notable barrier created by Zespri shareholders who are a minority of all growers, meaning that growers are unable to vote and exercise a degree of control over Zespri to which they would otherwise be entitled, Bond said.

The Berl report noted most New Zealand primary industry single desk export structures had been disestablished in favour of a free-market export approach.

“SPE mechanisms make a market a monopsony; where there is one buyer of a good in a market. Contrary to economic predictions of these markets, the New Zealand kiwifruit industry has performed well above expectations.

“Conventional economic analysis usually interprets monopsony (or monopoly) structures as technically inefficient because the buyer’s (or supplier’s) market power allows them to draw additional surplus from a market, thereby pulling the market away from equilibrium,” the report said.

Analysis conducted by the Australian Productivity Commission on SPEs in 2000 had concluded that an SPE subsidised exports at the expense of the domestic market; the cost-effectiveness of services provided by an SPE was difficult to determine and that the development of alternative market structures was limited by an SPE. Also, with no competition there was less incentive for innovation, and a lack of flexibility and dynamism.

“The experience of the New Zealand kiwifruit industry, however, does not align with these predicted outcomes,” Berl said.

It said the New Zealand kiwifruit industry was “an international success story” with green and gold kiwifruit commanding a significant premium on retail shelves across the world.

Kiwifruit is New Zealand’s largest horticultural export. Kiwifruit production is expected to jump from 175 million trays in 2021-22 to 258 million trays in 2030. New Zealand kiwifruit revenue is anticipated to rise from $2.87b in 2022 to $4.23b in 2030, according to NZKGI.

Zespri’s global sales in FY23 were just under $4b. The company has around 2800 New Zealand growers and contracts growers offshore to produce fruit in the New Zealand off-season so that the Zespri brand is on overseas shop shelves year-round.

Andrea Fox joined the Herald as a senior business journalist in 2018 and specialises in writing about the dairy industry, agribusiness, exporting and the logistics sector and supply chains.