Zespri's plan to counter rogue gold fruit growing in China

SunGold is New Zealand's biggest global seller. Photo / File

Unlawful growing of Zespri-owned gold kiwifruit in China has spread by 1500 hectares in a year to now involve at least 5500ha, making it highly risky for the global marketer to do nothing, says chief executive Dan Mathieson.

The rogue growing of Zespri's top selling SunGold fruit follows plants being smuggled out of New Zealand, and Mathieson said it would continue to spread.

This was why the company would in June seek a vote from its grower-owners supporting a tightly-controlled commercial trial with Chinese growers.

China is the biggest producer of kiwifruit in the world and is Zespri's biggest export market alongside Japan. SunGold is now New Zealand's biggest kiwifruit seller. The unlawfully grown fruit, for which Zespri owns the IP, is already being sold in China.
Zespri is among the top fruit consumer brands in China.

Zespri is proposing a one season trial starting later this year contracting about 20 Chinese growers to supply up to 200,000 trays of SunGold, or G3 variety as it's known in the sector.

The fruit would be contractually procured and quality would be monitored in the orchards and a post-harvest facility, with Zespri marketing and selling in China fruit that met its quality standards.

Mathieson has been working on the proposal in China with growers and local and central Chinese government.

If the trial was successful, Zespri would go back to its 2500-plus New Zealand growers to ask to start a second trial in March next year.

The upshot could be commercial growing of Zespri-branded kiwifruit in China.

Mathieson said the trial is seen as the best way to try to protect the interests of New Zealand growers.

"The risk of doing nothing is quite significant. If we get this right it means premium quality fruit coming out of New Zealand and China, protecting our shelf space for 12 months of the year.

"It would help us build a strong political relationship which would help protect our IP and bolster our legal options in China as well.

"We need to look at [producing] a 12-month supply as part of the overall strategy and ambitions for all our markets. We have a strong production base out of Italy and a growing base in Greece for our European business.

"Looking to where we can grow the counter-seasonal supply out of Asia, we currently grow out of Korea and Japan, though the volumes are very small.

"Could China be a production base for the future for us?"

Mathieson said the trial was a "significant opportunity" to capture value for New Zealand.

The three big risks were IP leakage, reputational damage and relationships in China.

"We believe they are manageable and the risk of not acting is greater," Singapore-based Mathieson told the Herald.

Dan Mathieson, chief executive of global kiwifruit marketer Zespri. Photo / Alan Gibson

"Those are the risks we've had to face anyway in China for the past 20 years, and also the same risks all foreign companies doing business in China face.

"As long as we put strong mitigations in place and engage pragmatically in China there are solutions and the business can continue to grow really well. We believe we have to get in and make it work."

Mathieson said the focus of the Chinese government, local and central, is to bring people out of poverty and improve the lives of rural dwellers.

"A lot of kiwifruit is grown in these sort of communities."

Chinese officials were keen to partner with Zespri to encourage horticulture innovation through strengthening plant variety rights.

Horticulture in China was generally boom to bust, he said.

"There's limited protection for plant variety rights and very soon supply overtakes demand because of lack of marketing and investment. There's short-term value for growers and then they see a market crash with value dropping.

"We'd like to see a strategy and structure to partner with growers and provincial government to tighten plant variety rights and sustain value through innovation."

On the risk of diluting Zespri's brand, Mathieson said Zespri would bring three things to the Chinese table.

"An ecosystem of innovation and sustaining value from that innovation which has proved successful over two decades; the strength of the Zespri brand which is one of the top fruit brands in China today; and we bring great quality kiwifruit out of New Zealand for half a year.

"This allows us to set a new benchmark for quality and value in the China market. That is very attractive because it allows domestic [China-grown] kiwifruit to aim to reach that value in the counter-seasonal season from the northern hemisphere.

"All those assumptions are what we want to test in the trial."

Quality monitoring in a trial would include testing for residues, a problem in China.

Legal action would continue to be taken by Zespri against brand counterfeiting.

The first trial, if approved by growers in June, would cost Zespri about $7m in people resources in Chengdu, Sichuan province, to manage, monitor and police quality standards.

Chinese growers would provide their own land.

Mathieson said if the trial continued to the next phases, provincial government would be looking to support the venture with labour and had expressed an interest in post-harvest investing.

"And obviously they'd invest with us in protection of plant variety rights."

The trial had been discussed with growers during roadshows in New Zealand earlier this month. Growers had "plenty of questions", Mathieson said.

Grower advocate NZ Kiwifruit Growers said growers had been informed of the risks and the opportunities of the proposed trial.

Growers' views would become evident in the June producer vote, it said.