KEY POINTS:
Kiwifruit exporter Zespri fears the soaring New Zealand dollar could cut returns to growers by up to 20 per cent this season.
Chief executive Tony Nowell said grower returns could plummet by as much as $1.60 a tray from around $8 dollars a tray in the year to March 31.
"The strength of the New Zealand dollar diminishes the return," said Nowell.
With the aid of $43.5 million from currency hedging Zespri was able to boost grower returns by $77 million to $654 million last season - but such a feat was "very unlikely" to be achieved this season, Nowell revealed at the company's annual meeting in Tauranga on Tuesday.
Nowell said the currency, which closed yesterday at US79.32c. was out of the control of exporters or the government. But he said there was some evidence of falling consumer confidence, which offered an opportunity for an easing of monetary policy.
"What any exporter must try and do to mitigate the effect of the currency is to maximise their pricing in market to the greatest extent possible and sell as much volume as they can so that we make sure we get the maximum efficiency through the production system in New Zealand. There is nothing more we can do."
Cutting back on promotional spending was out of the question, as it would harm Zespri's ability to sell volume. "It would be cutting off our nose to spite our face. To control costs one of the main things we can do is just make sure everybody has got their nose absolutely to the grindstone in terms of making sure that every penny that is spent in the business is spent to the greatest."
Nowell said Zespri had sold 30 million trays of fruit this season - 15 per cent up on the previous volume.
He said this result was supported by strong sales in Japan and east Asia, including China, where sales had grown more than 100 per cent.
Korean sales were also strong, despite competition from Chilean producers, whose free trade agreement afforded them a much lower tariff than New Zealand fruit attracted.
Chilean rivals attracted by the euro exchange rate were making Zespri's life tougher in Europe, where cold weather had suppressed sales of fruit. "It's a much more aggressively competitive environment than normal."
In addition, the company was having to compete with product from Italy, which was encroaching on Zespri's seasonal window, having stored significant volumes of last season's fruit.
"We're not only competing against our southern hemisphere competitor Chile but we're also competing in the same window against the Italians."
At the AGM, shareholders approved a $2.3 million investment in developing new cultivars, and $800,000 for the research and development of products derived from kiwifruit.
Falling returns:
* New Zealand kiwifruit exporter Zespri controls a quarter of the world's commercially tradeable kiwifruit.
* With the New Zealand dollar rapidly rising toward US80c Zespri says grower returns could fall by 75c to $1.60 a tray for 2007/08, despite strong sales.
* To offset this expected loss, Zespri says it will need to cut costs.
* Raising prices is an option but rising production in China and higher quality kiwifruit from Chile and Europe threaten Zespri's ability to charge price premiums of up to 40 per cent.
