The UK and Ireland took 22 per cent of the apples and pears exported from New Zealand in 2007 and, as such, remains a key destination for the Kiwi industry. It no longer represents the honey pot it once was, however, with returns dropping to a level that is barely serviceable by a country that is further away than any other, and therefore feeling the pressures of rising costs and unfavourable exchange rates more acutely than any of its competitors.
One exporter, who preferred to remain anonymous, tells FPJ: “The UK and Europe used to prop up the rest of the world for us, but the exact opposite is the case for most exporters now. We are simply not making any money out of the UK, and have not been doing so for the best part of the last decade.”
He was far from alone, and many who would agree are not around to tell the tale, having fallen by the wayside or been swallowed up as the industry consolidated from 1,600 growers pre-deregulation in 2001, to just 400 as it entered the 2008 marketing season. Consolidation to a degree was necessary, but that does not make it any less painful. The question for those that have survived the cull is what happens next?
The clouds of doom have, of course, circled above the industry on many occasions in the past. But amongst the top-fruit fraternity, there is an unstinting belief in the intrinsic quality of the fruit it is able to offer the world.
Those that have been able to find the money to reinvest in their orchards are setting their stall by a selection of new varieties. An industry that was not that long ago reliant on Granny Smith and Red Delicious, enjoyed huge success when it led the world with Royal Gala and Braeburn. Its breeding resources have also launched the Pacific series into the international market, and a new clutch of varieties is on its way.
Paul Paynter at Yummy Fruit Co. sums up the situation: “We have nervous banks, due to the time frames involved in replanting, and therefore many nervous growers who are getting older and not seeing the next generation of their families coming through into the business,” he says. “New varieties are the only way forward, but that requires money, and not many people are able to invest with any confidence.”
Variety-wise Enza-owned Jazz has caused the biggest stir in recent times, and is being grown under licence in several other production areas. Turners & Growers (T&G) director Brian D’Ath owns 60 hectares of orchards and leases another 15ha, and is replacing around 4ha a year with new varieties. “We look at the varieties that are contributing the least to our business and take them out,” he says. “Royal Gala trees are coming out mainly for Jazz this year, for instance, and we have also begun to plant Envy, which has come out of the same breeding programme as Jazz and, I think, has fantastic potential.
“In two years, more than half of my trees will be Jazz or Envy. Twenty five per cent of my area is Jazz now, and the first Envy will start to come through next season. I wish I had more of the newer varieties. It has become harder to make money out of Royal Gala, as countries like Chile have a lower cost base than us. And returns on Braeburn have been consistently low, which is not a reflection on the apple itself, but more that the industry has tended to send too much to market. This year should be a good test for Braeburn, as some growers have taken trees out and others lost a lot of fruit to frost. New Zealand will have around 20 per cent less Braeburn to sell, which should have a positive spin on prices.”
Mr Apple is the largest Braeburn grower in the world, according to its sales manager Andy McDougall. However, it too is looking elsewhere in recognition of the global Braeburn situation. “We have by no means given up on Braeburn yet, but we have a long-term investment strategy that amongst other things sees us plant at least 20ha of new varieties each year,” he says. “We have planted Pink Lady, some new strains of Fuji and upgraded some of our Royal Gala strains. We have also planted some Jazz, and we are having a look at Envy.
“I don’t think Jazz is going to be the saviour of the industry. Different retailers want different things. Many retailers only have limited varieties on shelf at a time, for example, so there will always be a market for high-volume varieties.”
Yummy Fruit Co. sells 80 per cent of its fruit domestically, and Paynter says that as energy, distribution and labour costs are rising sharply, certain varieties are losing touch. “We are an expensive producing nation, and therefore there has had to be a move away from Royal Gala, Braeburn and Granny Smith,” he says. “Traditional varieties are slowly dying. For us, until recently, that saw us move towards the Pacific series, and Pacific Rose is the number-one seller in New Zealand. It hasn’t really been successful anywhere else in the world, because it too is a high-cost variety, and it is difficult for New Zealand to compete in markets unwilling to pay the premiums.”
The Pacific series of apples has perhaps not made the impact that many expected in export markets but, despite the fact that the fruit can be problematic to grow, it is widely grown and has a dedicated following in the domestic market, where Pacific Rose and Pacific Queen are recognised as premium varieties. Like his competitors, Paynter is searching for alternatives. “Since 2004, we have not planted any older varieties; we have got three HortResearch varieties going in and we have planted some Ambrosia, out of Canada,” he tells FPJ. “We want to learn our lessons and earn our stripes with these varieties in New Zealand before we even think of taking them to the export market.”
He concurs with McDougall that Jazz is not necessarily the stand-out apple of the future. “I like the Enza varieties Jazz and Envy, but I’d also say that there are 20 apples at HortResearch that have the potential to be even better. It may be 15 years before some of them really make an impact though, so you have to have good commercial vision to take that route. If you do end up with the variety that sets the market abuzz, that is a huge commercial advantage though.
“For a grower, to go with the Enza varieties, you have really got to believe in the marketing ability of Enza to make the initial investment. Decisions have to be very hard-nosed these days, and Enza’s approach to intellectual property management acknowledges that. I hope they are successful, they seem to have a sound strategy, and they have some good people.”
Deregulation inevitably reduced the power of Enza, but it remains a dominant force, with around a third of the industry’s exports still channelled through its systems. D’Ath says: “The reason I supply through Enza is that we own the varieties, and are able to put the promotional resources into them with the knowledge that no one is going to come in and undercut us. The only way to make a variety like Jazz a success for instance, is to go into the market with a united front.
“T&G has made a big commitment to Enza, and the produce business. Tony Gibbs [the chairman] is a farmer at heart. He understands the vagaries of our industry and what we are going through, and has instigated a very level-headed approach the business,” says D’Ath. “The industry got to the size it was because of regulation and not despite it. It is a very tough business nowadays, and that is why in my view you need varieties like Jazz or Envy in your mix, if you want to be competitive.”
“I think people underestimate the scale of the change from monopoly to deregulated market,” says Paynter. “There was a failure to adjust and, at the same time, multi-million dollar investments were being made in the industry. Enza already had its facilities but, all of a sudden, people were building packhouses and other facilities at great expense. There was understandably a lot of naivety in the market, as it was used to the protection of a single desk structure, and also a lack of understanding of the realities in the export market. There were vast volumes being produced, but not too many people knew very much about getting fruit to the market. The retailers had to start again too, as they didn’t really know the growers. People can make a lot of money in these circumstances, but there is also inevitably a great deal of blood letting.”
Enza, with the backing of T&G, has begun to invest back down the chain in its own orchards, one of which it bought in January 2007, in Hastings. It was the first such investment by the company in the Hawke’s Bay region, and immediately, manager Kurt Ryan set to work remodelling the orchard’s portfolio. Some 12 hectares was grubbed and replanted last season, and another 12ha will meet the chainsaw before next season. Blocks of Braeburn are being replaced predominantly with Jazz and Kiku; a decision based on unsentimental commercial judgement. “It felt great,” says Ryan, who took on the reins of the family orchards when his father sold to Enza. “The last few years have featured a lot of doom and gloom, and we are replanting with some great varieties - this is very exciting for us. The returns on Braeburn and Royal Gala have been generally so poor in the last 10 years that there are a lot of orchards in New Zealand struggling,” he says. “Many growers just don’t have the money to reinvest. A large number of orchards have been leased by export companies needing the volume to support their huge packhouse and coldstorage facilities. It will be interesting to see what happens in the next two or three years, when those leases come up for renewal. The chances are that many will not get renewed; there are plenty of horticultural alternatives to apples.
“As Jazz and Envy become a bigger proportion of the overall crop, Enza will increase its share,” says Ryan. “There are a lot of new trees going in the ground, but as part of a process of substitution rather than expansion. Growers that have planted have been going for Pink Lady and Tentation, the Fuji strains, or a few high-coloured Royal Gala strains, but the choices are limited. Enza certainly has an advantage with the availability of Jazz and Envy, and Jazz has already proven itself, so the market growth expectations are attractive.
“Five years from now, it will be interesting to see what proportion of Royal Gala and Braeburn is left. They could both have a future and, as growers pull more trees out, the industry will get closer to the volume it needs to bring prices up.”
Paynter believes supermarkets with courage could steal a march in the varietal stakes. “If I was Waitrose, I’d be on the first plane out to HortResearch to snap up a variety exclusively. Get the middleman out of the equation and make it happen. Whereas that might be more niche, Tesco, on the other hand, has the horsepower to create another Pink Lady. The committed backing of a large chain for a variety would lower the risk profile for a grower and perhaps convince the banks that it is worth backing.”
Investment has also been made into new technologies, but as the rest of the world catches up, the positive effects are largely nullified. “SmartFresh is both helpful and unhelpful to us,” says McDougall. “Consumption around the world is not rising significantly and the windows of opportunity for our fruit have therefore dwindled, as technology allows our competitors to extend their seasons with a lower cost base. The ability of our fruit to last the distance has been enhanced too, but we really have to be looking to nail the windows we still have, coming in late once our southern-hemisphere competition has gone and before the northern hemisphere starts again.
“Last year, some exporters tried to force sizes into the market that were not required by customers. We have to be smarter about it as an industry. If the fruit doesn’t have a market, it has to be juiced; if there is no prospect of an economical return, don’t pack it, juice it straight out of the field. Marketers don’t help growers at times, as they just want the fruit to sell; it’s all about turnover and not about the grower for them.”
Paynter agrees: “Growers need to control their inputs and retain some influence on the outcomes. We are the grower, so we are able to develop our business with new varieties, using our own nurseries to grow our trees and drive as many costs out of the process as we can. We also have full control of the postharvest process, as well as the marketing, so our destiny is in our own hands to a large extent. It can cost NZ$150,000 (£60,500) to get one hectare of orchard into production - to make those types of decisions across 20ha needs a lot of belief. I believe in the marketer because I am the marketer; we don’t just take the fruit, click the ticket and wave it through.”
The consolidation of the grower base is not over, he says: “We are certainly going to see a smaller volume of fruit spread across a smaller group of growers in the next few years.”
SEASON SWINGS INTO LIFE
As reported in last week’s FPJ, the portents for New Zealand’s apple exporters to the UK are decent, as their early fruit hits a receptive market, but late starts in South Africa and Chile are likely to signal a tough season.
Shipping is now in full swing in all southern-hemisphere markets, and any advantages NZ had in Asia is quickly being swallowed up, as fruit from competitors with lower cost structures begins to arrive in force.
The EU looks favourable, but exporters in NZ will privately admit that they do not expect to make money in the UK this year, with the existing pricing policies of supermarket customers leaving precious little room for margin.
Frosts in all major production areas in October have had an effect on crop volume, with Braeburn particularly affected.
Spring frosts have become more of a problem in recent years, as New Zealand feels the effects of the changing global climate like everywhere else. Protection systems have been put in place by some growers, but many of those who have not invested are counting the cost this season.
“This is a small sized year,” says Mr Apple’s Andy McDougall. “The fruit in general will be down one count. The frosts in October hit Royal Gala and Braeburn, even though a lot of orchards have frost protection. It was cold everywhere and, because of that, the inversion layer that is necessary for the wind machines to take effect never built up over the orchards. The majority of king fruit throughout Hawke’s Bay just got taken out.
“It will be a good season though for colour and sugar levels, and pressures are fine,” he adds. “From a UK perspective, that is a very good combination, but for the US, for instance, there will not be enough volume available,” he says.
Royal Gala is generally short across the southern hemisphere, and Pink Lady is also in demand, as northern-hemisphere fruit clears the decks. The reduced availability of these two big-volume varieties may well turn out to be a blessing for NZ growers, as the campaign pans out in the major northern-hemisphere markets.
UK retail prices are running 12 per cent higher than in 2007 at the start of the NZ season, but Ian Palmer, chairman of Pipfruit NZ, says the industry must be consistent with its marketing strategy to ensure it does not create bigger problems for itself than are already out there. The association proposed a unified approach to Braeburn marketing overseas, and it has been widely backed. “It is very pleasing to see the support for the Braeburn management proposal,” says Palmer. “This initiative will cost very little per carton, with potential for significant upswing on export returns. The EU market is pivotal to the overall Braeburn return, and has the most stable exchange rate for us. Market vagaries will happen, but there is no room for a cascading downward Braeburn selling price this year.”
Palmer has seen it all before, and recognises that there are usually exporters who are happy to slip the net and risk the wrath of their colleagues. “Like everything, this proposal has its detractors. I certainly hope these exporters respect the intention to generate the stable platform and price for growers,” he says. “If I do come across hard evidence of the wrong market profile fruit disrupting the European market, I will have no hesitation in naming that brand to the NZ industry.”
SEARCHING FOR CERTAINTY
In recent seasons, Mr Apple has transformed itself into the largest shipper of top fruit out of New Zealand, moving from being a 1.2 million carton sender in 2002, to a 3.3m carton sender in the same period that the industry has declined from a 21m carton crop to 16m cartons. Around a sixth of the company’s exports are sold into the UK, through Empire World Trade, and most of that fruit is grown in central Hawke’s Bay, which tends to produce the slightly smaller sizes and denser, redder apples that suit the marketplace. Mr Apple is also responsible for meeting 70 per cent of German giant Lidl’s apple demand from New Zealand, and also sells fruit into the continent through third parties.
Almost 50 growers provide the company with its fruit, with 1,000 hectares owned by Mr Apple. As well as the growers in central Hawke’s Bay and around Hastings, the company is in the fifth year of sourcing fruit from Nelson. Three packhouses, including one designated for roughly 250,000 cases of organic fruit a year, handle the majority of the export packing.
Andy McDougall, sales manager, is responsible for developing new markets for the firm’s fruit, dealing with around 60 importers in 40 countries around the world, largely on a container-by-container basis. The dynamics of his role differ from the programme sales into larger customers, but has been recognised as integral to optimising the value of the fruit sold by the company. “We have got about 23 per cent of the industry now, so we must be doing something right,” he says. “But going through other avenues, we were not necessarily seeing as much growth as we would like, although that business is important to us. Sometimes, an over-reliance on particular markets can work against you and, as a company, we have an overarching focus on achieving the best value out of a bin of apples and with that increasing grower return.”
Mr Apple can claim to have been successful in that respect, despite the industry overall having struggled in recent seasons. McDougall says that his firm paid an average NZ$2-3 (81p-£1.20) a carton more than most other exporters to growers last year. “By maximising returns on out-sized fruit, we can significantly bump up returns,” he explains.
McDougall used to work for Freshmax, but says there is one major difference with his position now. “We are the grower, which means I can spend 90 per cent of the time marketing the fruit, with full knowledge of what fruit is behind me, rather than spending 90 per cent of my time sourcing the fruit,” he says. “Because we are the grower, we want to make the grower side of it work; that’s our main focus. In all of our work, we listen to what our customers worldwide want, and we implement it in our orchards. In Europe, the Lidl business has grown from just 50,000 cartons five years ago, and that is purely because we have shown we can deliver.
“My job is to develop a profitable business directly with importers in non-traditional markets in the rest of the world. We are not taking business away from our traditional markets, but diversifying to create a customer base that can deal with our full range of fruit sizes. My aim is to make a decent return in all markets.
“I’m working with some of the larger importers in Asia, and already we are beginning to put programmes in place that weren’t really there before. Both sides are benefiting from that; the importer is receiving regular delivery of a consistent quality of fruit, and we have greater certainty when we ship the fruit, and a reasonable price agreed beforehand. They know what they are going to get from us and they pay us accordingly,” says McDougall.
INDUSTRY UNITES TO RELIEVE LABOUR PAINS
The shortage of seasonal labour in New Zealand has been well-documented in FPJ over the last few months. Government policy was blamed for restricting the flow of overseas workers into the country.
Unemployment is at a record low. In the entire Hawke’s Bay region, less than 150 people are registered jobless, and the majority of those are unemployable. In central Otago, another major production area, that figure is a barely believable 12. “There was no one left,” says Pipfruit New Zealand’s Gary Jones.
But the apple industry will have relatively few problems this season, and hopefully in future years, after the implementation of a scheme to integrate workers from the Pacific Islands into the country’s fruit industry. The Recognised Seasonal Employer (RSE) scheme was put in place in 2007 to facilitate the passage of workers from Tonga, Samoa, Kiribati, Vanuatu and Tuvalu into the orchards and fields of New Zealand’s horticulture industry.
It was roundly criticised at the time, as it coincided with the scrapping of existing work permit and seasonal worker schemes, as well as heightened restrictions on permits for foreign workers. However, the industry lobby has got its message through to the government, and a relaxation of some of the restrictions and a remodelled RSE seems to have gone some way to righting the ship in 2008, as well as putting the blocks in place for future years.
The labour will follow the production trail for seven months, working across various sectors. The Hawke’s Bay’s apple and pear sector, which needs around 12,500 people annually to pick its apple crop, will employ around 2,000 Pacific Islanders this season, while Nelson and Otago will see around 400 and 300 respectively.
The extra availability should provide the balance the industry needs. “We also have a lot of people coming through holiday schemes; 35,000 people were given three-month extensions on their visas to work in horticulture or viticulture last year. And with the apple crop being a little down this year, that has helped,” Jones says.
The scheme is part-funded by the NZ government and part by the World Bank. But growers are also dipping into their own pockets to invest millions of dollars in accommodation, as well as a one-way airfare for each worker, and the often intangible elements that make the scheme corporately, socially and religiously responsible.
“The scheme is regionally focussed at the moment, as industry bodies develop relationships and formalise the process,” says Jones. “Some growers will inevitably take large numbers of workers from a particular island and that way direct relationships will be created.
“The workers are able to more and double their potential earnings, which will make a big difference to their families in terms of housing, education etc… on the islands.
“The government has been fantastic; it is a very forward thinking project. They have slightly loosened the reins to allow for freer movement,” Jones adds.
CHARTER VESSELS KICK START ENZA SEASON
FPJ visited the Port of Napier on March 22 to see the loading of the second vessel chartered by Enza this season. The Hansa Stockholm left for the UK and Belgium with 5,425 pallets of apples on board; 5,000 pallets of which were Royal Gala, and the balance early Jazz.
The vessel is due to arrive in Sheerness on April 18, and is one of five used by Enza through the season to ensure the market has sufficient volume of fruit at key times. “Around 20 per cent of our total volume of fruit goes on the five charter vessels,” says Simon Beale, national shipping manager at Enza International. “The Hansa Stockholm is one of the larger vessels we have used, as part of our long-term relationship with Seatrade. The challenge this year is to get early volume into the market at the right time. To get sales going in the UK and on the continent, we need a large volume of fruit to service customers in the way they want to be served.”
Vessels willl leave New Zealand in week 10, 12, 14, either week 18, and week 25. The first vessel, which has already arrived in the UK, was half full of Cox under controlled atmosphere storage, which Enza feels is the best way to ship the variety to ensure quality and staying power.
The apples and pears on the Hansa Stockholm, whose crew was Russian and Philippino, were sharing the vessel with onions, yachts and yachting equipment bound for the continent. “The third charter of the season will have the first Braeburn volumes, and once that has gone, all of the fruit will be going into containers, with the largest week seeing 250 containers,” says Beale.
In the past, as many as 115 (including mixed charters) charter vessels were used during a season, but deregulation has changed that. “Because there are less charter vessels being loaded, we are now searching around a lot more for skilled labour in Napier,” says Beale. “Tauranga has a solid labour force for seven or eight months, as it has apples and kiwifruit to support, and Seatrade has just moved its office from Auckland to Mount Mangaunui to move closer to its major customers.”
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