Turners takes legal action in bid to end monopoly

Zespri workers loading up kiwifruit. Photo/Bay of Plenty Times

Listed fresh fruit producer Turners & Growers has taken legal action against Zespri, the second major offensive in its campaign to end the kiwifruit exporter's near-monopoly status.

The Guinness Peat Group majority-owned company yesterday filed proceedings in the High Court at Auckland claiming Zespri had abused its dominant position and that the Kiwifruit Export Regulations 1999 are unlawful because they are inconsistent with the Commerce Act, which protects open competition, and with the Bill of Rights Act 1990.

The legal challenge came on the eve of Zespri's annual meeting in Tauranga and will inflame a debate Turners & Growers started last month with a direct request to the Government, supported by an independent economic report, to remove Zespri's export monopoly which applies to all countries other than Australia.

Meanwhile, in papers released under the Official Information Act, the Business Herald has learned Turners & Growers proposal for industry deregulation is "under active consideration" by the Ministry of Agriculture and Forestry.

But MAF has supported a Zespri claim that the release of an October 2008, Zespri paper "Market Power and the NZ Kiwifruit Industry" could jeopardise New Zealand's trade negotiating positions and potentially do "substantial harm" to the economy and Zespri's commercial position.

Zespri, owned by 2700 kiwifruit growers, posted export returns of $800 million in 2008-09, exporting two billion pieces of fruit to 65 countries. The Mt Maunganui-based exporter's marketing control does not extend to Australia because of CER (Closer Economic Relations agreement).

The debate would be a "grower issue", said Zespri chairman John Loughlin. "Growers own Zespri and the single desk was something granted to growers. Basically Zespri is trying not to be political on this."

The Zespri growers' group has responded that a 2007 survey showed 84 per cent of growers were happy with Zespri's status. Turners & Growers managing director Jeff Wesley said he was considering a confidential survey to test growers' support for Zespri.

Yesterday's filed proceedings on behalf of Turners & Growers and its wholly owned subsidiaries Turners & Growers Horticulture and ENZA, claim that:

- The Kiwifruit Export Regulations are unlawful.

- Zespri has abused its dominant position for the purpose of preserving its monopoly after deregulation by: a) seeking to tie growers, suppliers and post-harvest operators into exclusivity contracts; b) attempting to take control of the supply of kiwifruit for export to Australia; c) attempting to take control of new kiwifruit cultivars (T&G has developed its own cultivars).

They also claim Zespri has unlawfully discriminated among suppliers by paying more for fruit supplied by growers prepared to sign exclusivity agreements with Zespri, and that Zespri has unlawfully carried on businesses and activities prohibited by the regulations, without getting the approval of shareholders and suppliers. The proceedings claim breaches of the Commerce Act have caused damage to Turners & Growers subsidiary ENZA.

Zespri is the result of statutory corporatisation of the Kiwifruit Marketing Board 10 years ago.

Turners & Growers is chaired by Tony Gibbs, Sir Ron Brierley's lieutenant in New Zealand. The bid to get Zespri deregulated is an echo of Gibbs' 2000 sharebuying raid on apple exporter ENZA, then the marketing arm of the Apple and Pear Board.

The raid led to the Labour-led government deregulating the pipfruit industry in 2001. At the time Gibbs argued for the retention of ENZA's single desk status. In 2003 ENZA became part of Turners & Growers.

But this time Gibbs is using different tactics. Frustrated at being denied export licences at a time when Zespri has been calling on growers to destroy kiwifruit to prop up prices, he cannot get control of the exporter by buying out struggling growers. Voting rights in Zespri correspond to fruit production volume, not shares.

Turners & Growers is responsible for just 1 per cent of kiwifruit production, says Zespri.