How to avoid dodgy dealers

Zespri has found itself innocently linked to sharp practices in China.

Fran O'Sullivan is a business columnist for the NZ Herald, and Alexander Speirs (right) is a business journalist for Herald Business Reports.

Zespri says it's exercising greater vigilance in its relationships in the all-important Chinese market.

But that hasn't stopped the sole New Zealand kiwifruit exporter facing another debilitating round of media exposure since an NBR story broke revealing nine staff at its new import agent in North-East China had been arrested by Chinese Customs.

Or some hopeful competitors to Zespri trying to use the event in their campaign to remove the state trading entity's export monopoly.

Given Zespri's prior troubles in China with its previous import agent Neuhof - which was found guilty in 2012 of failing to pay import duties - it is indeed embarrassing for the kiwifruit exporter to find itself linked with problems facing one of its four Chinese substitute agents Dalian Yidu. Dalian Yidu's nine staff are said to have been arrested for importing prohibited fruit - not NZ kiwifruit - and the company is also being investigated for an under declaration of duties ("smuggling").

It's easy to beat the story up given the fact that Zespri's own subsidiary - Zespri Management Consulting Company - was fined nearly $1 million after being convicted of under-declaration of customs duties in Shanghai between 2008 and 2010. Mid-level marketing manager Joseph Yu was sentenced to a five-year prison sentence.

But it's important not to over-egg it.

After Zespri's problems with Neuhof it changed the way that it invoiced its kiwifruit sales in China. Chinese Customs is now understood to know exactly what duty is payable upfront via an audit to ensure all of its importers acted in accordance with international best customs practice.

Hence, the double-invoicing racket which previously brought Zespri into disrepute should be behind it.

The company's PR person says Dailan Yidu dealt with around 4 per cent of its China volume last season and it has no financial exposure to the agent.

The Ministry of Primary Industries is investigating the issue.

Obviously, if the mud sticks as far as Dailan Yidu is concerned, Zespri can just get another agent. But MPI - like Chinese authorities - will want to make sure that everything is tidy on the NZ side.

What the new revelations bring home again is the importance for agricultural and horticultural exporters of knowing just who they are getting into bed with.

They could usefully take a leaf out of Don Baird's book.

The Mainfreight chief executive relates that it's important to distinguish between your hats ("black", "white" and "grey") when setting up distribution arrangements in nations like Russia, China or India.

Mainfreight has occasionally hit roadblocks put up by corrupt officials who want their cut. Braid says the international logistics firm made a decision to just follow the white line where paperwork is beyond reproach, goods are cleared correctly through customs, and bureaucracies carefully navigated so everything is above board.

When we talked with Braid on this issue a while back, he said it was an easy slope from white to grey, and then "you're just a hop, skip and jump to the black lane - where pay-offs are made under the table to ease goods through the system.

"You can imagine the pressure that comes from exporters trying to get their goods into a country, or importers trying to get their goods [once they are on the dock].

"Organised crime and dodgy government employees are involved - and we refuse to go there. We have a policy of anti-corruption, white lane only."

We make no suggestion that official corruption is at work in the Zespri incident. But it is important to know what your agent is up to.