Kiwifruit vines at Puketapu destroyed by Cyclone Gabrielle. Photo / Warren Buckland
After a “horrible” couple of years which has turned the mood of the sweetheart export kiwifruit industry sour, global marketer Zespri has some sugar to offer.
Chief executive Dan Mathieson believes that after a relentless caning by Covid, labour shortages, extreme weather events, supply chain turmoil, inflation and the spawn of all this, smaller harvests and a costly and potentially reputation-damaging fruit quality problem, the $4-plus billion industry can now switch from tactical reaction mode and resume growth.
This is an industry which fought its way to blue chip export status in record short order after the imported disease Psa destroyed pretty much its entire gold fruit operations in 2010. While it is Mathieson’s job to sound positive, his confidence is not to be dismissed lightly. “It’s been a horrible tough year for our growers on the back of a tough year in 2022 ... we were hit with fundamental changes to the way we operate, mainly through lack of people coming through while the borders were shut, and weather events continuously hitting us over the last 24 months,” he says.
“We’ve certainly had to pivot from longer-term strategy to focusing on the immediate circumstances confronting us, so there’s been a shift.
“Now I feel we are moving back as an industry to a place where we start focusing again on delivering great quality and getting value back to growers in New Zealand.”
The 2023 financial year was a year Zespri would rather forget.
Its net profit after tax, including revenue from selling growing licences, was $237.8 million, compared to $361.5m the previous year. Net profit before tax was $331m, against $505m in FY22. Global operating revenue, including licence income, was $4.22 billion, compared to $4.47b in FY22.
Sub-quality fruit issues and associated costs meant $534m less available to pay growers. In FY22 the fruit quality bill was $307m.
Zespri sold 183.5m trays of New Zealand-grown and offshore-grown fruit, down from 201.5m trays in FY22.
Its New Zealand supply segment made a loss of $22.1m due to higher costs and reduced fruit volumes. The previous year it made a profit of $24.9m.
Record grower returns of recent years took a dip with green and gold fruit per hectare returns outside even the lower end of Zespri’s forecast ranges. Total New Zealand-grown fruit and service payments, including a loyalty premium, fell to $2.2 billion from $2.47b in 2022.
But Singapore-based Mathieson says with the fruit quality issues addressed at a pan-industry level, the labour force recovering in the orchard and post-harvest sectors and quality fruit getting through to markets in a timely way, things are looking up.
“Fruit is moving well, we’re getting a strong sales run-rate, good pricing and should certainly see a good increase in returns to growers this year.”
He says despite the challenges — and this current season has been a tough one too — prices have been “strong”.
That’s not to say all issues are in the rearview mirror.
Colin Bond, chief executive of growers’ representative, New Zealand Kiwifruit Growers’ Inc, says “many growers are experiencing severe financial strain on the back of low returns and increasing costs for producing kiwifruit”.
Low yields and lower prices mean green fruit production has become unprofitable for most but top operators of size, while gold fruit growers are said to be disappointed by Zespri’s latest 2023-24 season orchard gate forecast of $10.50-$12 per tray, given the smaller crop. SunGold, which replaced the Psa-devastated gold variety, is Zespri’s best-seller.
As one green grower said: “Even if Dan could get us $8 a tray, it wouldn’t help with the yields.” Zespri’s latest green forecast is $7.25-$8.50 per tray. In FY23 the average green per tray return fell to $5.38.
Mathieson notes continuing fruit quality costs are reflected in the latest forecasts.
“We’re still seeing high quality costs ... but we’re also getting strong price increases so that’s positive.”
Bond says the industry’s not out of the woods yet on the fruit quality issue.
While critical elements of an industry plan to counter the issue are largely complete, he says this season is far from over.
“Growers will recall last year’s quality issues only became apparent at the end of the year. Nevertheless we expect the results of the seven point plan to continue to support quality moving forward.”
Growers are keen to know when Zespri’s New Zealand supply segment will return to profit. It made a loss of $22m in FY23.
Mathieson says in FY24 — providing fruit yields lift.
“We are hopeful we’ll see volumes return in 2024 ... with a return to average yields of around 14,000 trays per hectare for gold and over 10,000 trays per hectare for green and more vines overall in the ground, that will take our revenue up significantly from where it’s been the last two years.
“And with strong pricing from the market we’re hopeful to be able to get back into a profitable situation next year — providing yields come back.”
So what else is top of mind for New Zealand kiwifruit growers — most of whom (2800) supply Zespri because it has the statutory right to export all this country’s kiwifruit, except to Australia. (The company, owned by current and former growers, is also supplied by 1500 offshore growers and post-harvest entities).
There’s quite a list. Improved returns from Zespri is up there. There’s concern about whether green variety Hayward has a future given many growers are reportedly barely breaking even or making losses. Another worry: how much longer the Environmental Protection Authority will allow growers to use the chemical Hi-Cane in their orchards.
The changing weather is big one, particularly, warmer winters and lack of “winter chill” to help fruit development.
A niggling worry given many post-harvest operators have declared losses this year is whether they will have the capital to invest in the infrastructure needed to meet a wave of bigger fruit volumes; and whether there is enough cold storage for these volumes.
Zespri’s rolling five-year outlook, according to the last update in December, provides for an increase in total New Zealand class one fruit from 164m trays in 2022 to 229m trays in 2027. This is equivalent to 39 per cent volume growth and includes the estimated commercial volumes of the new Zespri RubyRed variety.
So what does Mathieson have to say about the prospects for the green Hayward variety, the one you find in local supermarkets and which does not require a Zespri licence to grow?
Zespri leaders say how to capture better returns for Hayward fruit has exercised their minds for some time. Green kiwifruit abounds in global markets and despite boasting it offers the best quality example in the world, Zespri can struggle to command a consistent premium.
Mathieson scotches any notion Zespri will not want Hayward supply in the future, although the company expects volumes to reduce over time, and hopes to offer growers a new, sweeter, higher yielding green fruit variety by 2026-27.
“We want green in the portfolio, it is the backbone of the industry and still occupies a significant share of the supermarket shelf and has a place with consumers. We have many loyal consumers round the world who value it for its sweet-sour taste and health benefits.
“We have some of the best growers in the world, and there is strong world demand,” says Mathieson.
“It’s been a tough time for green globally. Italy and Chile have had a tough time too with weather events, Psa challenges and they haven’t been able to get great fruit to market.”
As a result, global green supply has shrunk. Chile’s green production has dipped from 250,000 tonnes a year to about 100,000 tonnes in the past five or so years, says Mathieson. Italy’s production this year fell from 600,000 tonnes to around 200,000 tonnes.
“A lot of that was Hayward.”
Zespri in FY23 sold 55.7m trays of New Zealand-grown green fruit, 22 per cent down on the 2022 season. New Zealand-grown gold fruit trays numbered 93.6m, down 3 per cent on the previous year.
Mathieson notes that despite the challenges of the past two years, “in 2022 (green) pricing was up over 10 per cent and in 2023 we’ve seen over 10 per cent again”.
“When we can actually get the fruit through, there’s strong demand.”
NZKGI’s Bond cautions that while it’s assumed the strong value Zespri is forecasting for Hayward exports will translate into strong tray returns for growers, Hayward volume is significantly down on last year.
“Many growers will have significantly reduced returns, regardless of the increased returns per tray.” Ditto, he says, for gold fruit.
Zespri believes the outlook for weather patterns is improving, which Mathieson hopes will translate to better production and yields for green growers.
“If we get good pricing back and growers able to grow a good yield and Zespri continues getting great value back, with all that working together there is a viable pathway forward for green growers.”
That said, Zespri is investing “heavily” in developing new green varieties. Four are being trialled and the aim is to present at least one to growers by the 2026-27 season.
On the spiky issue of whether the industry will lose its “critical” growing tool Hi-Cane or hydrogen cyanamide, a chemical sprayed on vines in winter to mimic a good frost and help buds form, Mathieson is also soothing.
The Environmental Protection Authority (EPA) proposes to ban its use in 10 years due to toxicity concerns but after a strong pushback from growers and what the authority calls “significant new scientific data and risk assessments completed by overseas regulators”, it’s reassessing the case.
The industry has no viable alternative for Hi-Cane. Mathieson is confident the EPA will accept the industry’s argument “that the opportunities well outweigh any potential risk” and “allow us to continue to use Hi Cane into the future”.
But what if it doesn’t, and an EPA-imposed deadline arrives before the industry finds an alternative tool?
“We know we have to innovate fast ... we recognise we need to continue to find alternatives so there’s significant investment going into that.
“It’s really challenging and we don’t have a viable alternative at the moment.
“We are focused on that and hope the the EPA will understand that and give us the longest possible period to be able to respond to a potential world without Hi-Cane.
“That said, we believe Hi-Cane, used well, is critical to growers to be able to grow productivity.”
Warming winters is another concern Zespri’s watching closely.
Vines need cooler days in the early growing season and they didn’t come in June, though there have been cold days in July and August.
“We now have to wait and see the impact on budbreak as we go into September,” says Mathieson.
With rainfall, frosts and hail hitting at “unseasonal” times in the past two years, the industry continues to think about three things in relation to weather changes, he says.
Best locations for growing; varieties that suit those locations; and responses to weather events.
“Right now we’re concerned about the lack of winter chill dates.”
Meanwhile, he says the industry is planning for a range of growing scenarios from low to high crop volumes and how to respond, with “critical” areas of focus being quality management and ongoing market development so markets are ready for volume growth, he says.
On grower worries about the depth of post-harvest sector capital available for infrastructure development to meet the volumes coming, Mathieson agrees there has been “a slowdown” in investment in the past couple of years due to events.
“At the moment we believe we have enough capacity, provided we get enough people (workers) coming back to the industry, to manage the volumes we will have in the next few years.
The industry — Zespri, growers, post-harvest operators and the Industry Advisory Council — is discussing the post-harvest outlook now, he says, noting “sizeable” investment went into the sector before the recent run of troubles.
Zespri will ensure “any investment plans are built into licence releases”, he says. “That investment clearly will be built on the profitability of the post-harvest sector and the biggest driver of profitability is volume.
“So what we need to see is a return to the volumes we saw prior to 2022,” says Mathieson.
OPINION: Tensions are likely to become more evident next year.