There is no doubt that top fruit is a tough market, and New Zealand producers are the living proof. The sector has been through a difficult few years, and there does not appear to be an obvious end in sight.
Deregulation is continuing to hit New Zealand apple growers, although some would say some of the industry wounds are self-inflicted. After all, in the scramble to get their fruit to market, growers are climbing over the bodies of their neighbours and the cut-throat tactics have hit the sector hard in the last couple of years.
The difficulties facing the industry are forcing some farmers to abandon their businesses. Geoff Murdoch, southern hemisphere procurement co-ordinator with Redbridge Worldfresh, says a number or orchards have been removed and many growers are having to make tough decisions about the future.
“When we see prolonged periods when market returns are insufficient to meet the cost of production we see the least economic orchards being removed,” he says. “These may not be the smallest in size, but may also be the less efficiently operated, or growers who have expanded recently, thus exposing themselves.”
Farmer Russel Lang is one producer who has been forced to take the chainsaw to his orchard. He says he was left with no option after years of low prices: “We’ve got to the stage where it just isn’t economic to grow apples.”
Ian Palmer, a grower and chairman of industry representative NZ Pipfruit, agrees that the industry is going through a period of change. “There’s certainly the possibility that there will be a bit of shrinkage this year due to the market situation. The whole situation has been quite devastating for some growers in our industry. Consolidation is inevitable.”
A lot of the misery is being caused by poor prices on the export markets and figures from the Ministry of Agriculture and Forestry show the tumbling situation.
Returns last year were reported to be about NZ$16 a carton, down from NZ$19.50 the previous year, and prices this year were not much different.
One Hastings grower, Gary Wake, says his returns have been even worse. He had predicted returns of between NZ$16 and NZ$22 per carton of Braeburn, but the swamped European market has dropped that to just NZ$8.
The difficult market has been particularly illustrated by the fact that one of New Zealand’s biggest top-fruit players, Turners & Growers, owner of exporter Enza, saw its unaudited profit before tax for the half year to June falling from NZ$8 million to NZ$6m.
Chairman Tony Gibbs attributed the plummeting prices to a glut of competing southern hemisphere fruit, but the problem was exacerbated by the behaviour of the New Zealand industry itself.
Murdoch says a lack of disciplined sendings had driven the prices down in the export markets and Gibbs agrees. “It’s kiwis eating kiwis,” he told local media.
The situation is an inevitable result of deregulation, with dozens of exporters now shipping apples with or without buyers or committed buyer programmes, essentially flooding the market and competing not just with other southern hemisphere producers, but other New Zealand apples as well.
Deregulation, in September 2001, saw the sector go from one single exporter, Enza, which was owned by the growers, to the situation now where there are more than 100 companies.
Palmer says: “We’ve fragmented our crop too far, so an effect of this will be considerable consolidation.”
But it is not just internal competition that is hitting home, he says. “Our selling windows are also being squeezed, with competition from other southern hemisphere fruit. Generally, other countries are improving the quality of their fruit, while some people consider the quality of our fruit, under the free market regime, has declined, but it’s hard to quantify.
“Our competitors have improved and can maintain sales for longer, squeezing us. We’re the last southern hemisphere country to market, which is a slight disadvantage.”
Poor exchange rates have also hit the industry in the pocket, and growers chasing better rates at the start of the season, have been caught out by sudden shifts. Palmer says: “The euro was better than the dollar at the start of the season. However, the euro has since moved into line with the dollar.”
What this meant was that producers shipped more to Europe than the US market, leading to a lack of supply in the US, and ironically pushing prices up more.
Despite all this, the UK market has remained relatively stable for NZ producers, which Palmer puts down to strong category management.
However Murdoch says the relative strength of the UK market this season could prove its un-doing next year. “The UK market is vital for the NZ apple industry as it consumes sizes not popular elsewhere in the world.
“However, this success is, and will be, based on solid supply arrangements from the grower to the market. My major concern is that based on a successful 2005 UK season, many growers will intentionally grow and pack to a UK size profile, thus flooding the market in 2006.”
Meanwhile, the situation with Australia has simply served to pour oil on the burning waters. NZ growers have been frustrated by Australia’s continued stance, denying their apples access over the potential risks of fireblight.
The issue has been subject to a protracted process of risk assessment, but NZ growers believe it has been deliberately stalled by the Australians.
Palmer says the sector is putting a lot of pressure on the Australian government but they were still waiting as the FPJ Supplement went to press.
“It’s a very long and slow difficult process, but it’s an Australian process, and we’re having to deal with their time frames. Australia is trying to create science to dispute it and that takes even longer.”
However, he says New Zealanders are not going to pull their punches: “If it’s not resolved we’ll instigate a full dispute with the World Trade Organisation and that’s a major step to take with such a major trading partner. We hope Australia won’t go that route, but if they do, they do. It’s a big source of frustration for growers, because it’s an unfair trade barrier.”
However, amidst the doom and gloom Palmer remains optimistic. “The market has been pretty difficult, but there’s still reasonable investment going on in the industry, and there’s good planting of Jazz taking place.”
And perhaps it is in the development of new apples like Jazz that the solution lies.
Palmer says: “Fruit sold under the Pink Lady brand is doing quite well, the market is holding its value and that’s due to the strength of its marketing model.”
He says the industry needs to get away from its reliance on Royal Gala and Braeburn, but at the moment there is no obvious successor. While Jazz is a strong contender, the volumes are still far too low to challenge Braeburn’s dominance.
However New Zealand is certainly at the forefront when it comes to varietal development and recently formed a joint international venture, Prevar Limited, to globally commercialise new apple and pear varieties.
Made up of Pipfruit NZ, Apple and Pear Australia, the Associated International Group of Nurserymen and HortResearch, Prevar has just released its first new variety - Sweetie Var-One cv.
The organisation claims the apple could prove to be a potential replacement for Royal Gala and Gala.
Brett Ennis, chief executive, says: “The commercial release of Sweetie Var-One cv is a significant first release for Prevar. We plan to release this variety in other global regions once we have completed our assessment programme.”
The work of Prevar is seen as something of a lifeline for an industry that introduced the world to the likes of Braeburn, with many suggesting the only way the industry can survive is to continue to be the innovator, staying one-step ahead of the rest of the world.
With a certain sense of understatement Palmer says: “The breeding programme is quite fundamental to our future.”
Despite the industry’s bleak situation, it is not sitting still and waiting for the axe to fall - it is busy drawing up plans for a fight back for next season.
The key to this is co-operation and Pipfruit NZ is looking to achieve that with the introduction of a new quality mark.
Palmer says: “The quality mark will link together the quality of our fruit, the purity of our land and our growing systems with the innovation of our industry.
“The sector needs to reinforce its position as the world’s premium apple supplier with targeted communication in its key markets.”
Another move will see the industry create a marketing panel of exporters, which will work together to promote and protect the image of NZ apples under the quality mark.
Palmer says: “We will encourage growers to supply fruit to panel members who agree to use the quality mark.”
The industry can use its leading status in Integrated Fruit Production for promotion, he says: “Until now we have used this growing system as a technical tool, and underestimated IFP’s marketing potential. Our challenge now is to align our growing systems with consistent fruit quality and New Zealand’s image. Together these will form the basis for the story that explains to the world why they should buy New Zealand apples.”
Pipfruit NZ is aiming to have the quality mark, which will be designed to sit alongside exporters’ brands, ready in time for next season.
All in all, despite tough times, the New Zealand top-fruit sector has far from given up and with the work it is undertaking in the development of new varieties, there are those in the industry that remain confident.
Palmer adds: “It’s been a difficult time, but next year’s another year and we’re resilient.”
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