developing a sustainable and long-term plan to maximise the wealth

Transcription

DEVELOPING A SUSTAINABLE AND LONG-TERM
PLAN TO MAXIMISE THE WEALTH OF NEW
ZEALAND KIWIFRUIT GROWERS
STAGE 2: INDUSTRY
VISION DOCUMENT
August 2014
CONTENTS
Overview3
How to use this document
3
Grower Roadshows
5
Opening Statement
6
Maori Impact Statement
7
Industry Timeline
8
KISP Final Principles
10
EXECUTIVE SUMMARY
11
Single Point of Entry 11
Industry Governance
12
Zespri Ownership
13
Marketing14
Supply Chain Effectiveness
15
Innovation16
Funding17
WORKING GROUP REPORTS
Single Point of Entry Working Group Report
18
Industry Governance Working Group Report
20
Zespri Ownership Working Group Report
24
Marketing Working Group Report
30
Supply Chain Effectiveness Working Group Report
36
Innovation Working Group Report
41
Funding Working Group Report
43
Glossary of Terms
46
Appendices47
2
Appendix 1 – Single Point of Entry additional pages
47
Appendix 2 – Industry Governance additional pages
49
Appendix 3 – Zespri Ownership additional pages
54
Appendix 4 – Innovation additional pages
56
Appendix 5 – Cost benefit of changing to an integrated onshore supply model
59
OVERVIEW
What is the Kiwifruit Industry
Strategy Project?
As an industry which exports almost all that it produces,
the New Zealand kiwifruit industry’s future will be
heavily shaped by the rapidly-evolving global competitive
environment in which it operates.
Key immediate global challenges and opportunities facing
the industry include China’s rapid emergence as a kiwifruit
competitor and source of foreign direct investment; the
development of new cultivars; predicted Gold3 volumes;
aging global populations; and rising middle classes in Asia
and Latin America.
For these reasons, the Industry Advisory Council
established the Kiwifruit Industry Strategy Project (KISP) in
September 2013 to develop a broadly-supported industry
strategy to maximise the industry’s long-term growth and
increase grower wealth within that. The project is being
overseen by the Kiwifruit Industry Strategy Group.
What is the aim of the Kiwifruit
Industry Strategy Project?
To jointly develop a strategy to maximise Zespri’s ability
to achieve the New Zealand kiwifruit industry’s long-term
market objectives and strategic and financial performance
for the benefit of New Zealand kiwifruit growers in a
changing global market with the wide support of key
industry stakeholders.
Who are the members of the
Kiwifruit Industry Strategy Group?
The Kiwifruit Industry Strategy Group is chaired and
facilitated by Neil Richardson, an independent party. Neil is
a hugely experienced and successful businessman. A partial
biography includes that he is currently chairman of New
Zealand Home Loans, Greenstone Inc, Child Matters and
SmartTrade. He has previously been the Group ManagingDirector of Gallagher Group, and the Chairman of Endace
Technology, Prolificx, Visique, Norris Ward McKinnon,
AgResearch and The Foundation for Research Science and
Technology and a Director of WEL Energy. Neil is also an
Adjunct Professor at Waikato Management School.
GROUP MEMBERSHIP
NZKGI Representatives: Neil Trebilco, Doug Brown and
Mike Smith
Grower Entity Representatives: Doug Voss, Peter Ombler
and Ray Sharp
Zespri Representatives: Peter McBride, Craig Greenlees and
David Pilkington
Iwi Representatives: Neil Te Kani
HOW TO USE THIS
DOCUMENT
The Stage 2: Industry Vision document consists of seven
papers, which are the output papers from each of the
seven working groups formed to consider the issues raised
in the Stage 1: Key Principles consultation phase of the
project last October.
The working groups are:
•Single Point of Entry
•Industry Governance
•Zespri Ownership
•Marketing
•Supply Chain Effectiveness
•Innovation
•Funding
The Executive Summary gives an overview of the working
papers produced by each working group. The accompanying
working papers then give more detail on the deliberations
and, where appropriate, the recommendations made by
each working group. Further supporting reading will be
made available, where possible.
It is important that this document is read in its entirety as
the deliberations by the groups are interlinked.
The Stage 2: Industry Vision document will be the basis for
the second industry consultation round that will begin with
the KISP Grower Roadshows starting on 21 August. The
roadshows schedule can be found on page 5.
Following the roadshows, and other industry consultation
meetings, submissions can be made to the KISP Group,
either using the form attached to this document or online
at www.kisp.co.nz.
Who can make a submission?
The Group primarily wants to hear from New Zealand
kiwifruit growers, as they are the foundation on which the
wider New Zealand kiwifruit industry is built.
It recognises that the wider New Zealand kiwifruit industry
also has a substantial interest in the outcomes of the
Project and the Group wants to hear from these groups
as well. This includes, but is not limited to, industry
stakeholders such as post-harvest operators, contractors
and collaborative marketers.
Submissions can be made using the enclosed submission
form. The Group will only accept submissions with the
name of the submitter/submitters provided.
3
What the Group will do with
submissions?
Stage 2: Industry Vision submissions will be collated and
considered by the Group ahead of Stage 3: Growers Decide.
This will be a final, proposed, future shape for the industry,
which growers will be asked to support in a grower vote in
November.
So what is being proposed?
Below is a high level summary of the KISP proposals
Core Principles
A NZ grower-owned and controlled sustainable inter-generational industry
Key Drivers
Create a flexible market driven strategy
Onshore refocus on the consumer and rationalisation of groups and committees
Create efficiency, effectiveness, transparency and clear accountability
Industry grower-owned and controlled: growers are at the heart of the industry Single Point of Entry
Proposals to get the best performance out of the Single Point of Entry (SPE)
Zespri Ownership
Owners: Landowners and, with landowners agreement, lessee of greater than 3 years
Aligned: a cap 2 shares per tray supplied at FOBS – helps create a liquid market
Voting: 1 share per tray supplied at FOBS
Dry Shareholders: after 3 years no dividend and option for Zespri to buy dry shares
If accepted in referendum, regulatory change will be required and Zespri’s constitution will
need amending – the timeframe is mid-to-late 2015
Changes to be made in accordance with the Companies’ Act with the rights of all
shareholders protected
Options for
Consideration
Market Led Supply
Chain
Options for
Consideration
Grower Council
Options for
Consideration
4
Supply Entities to contract with Zespri
Industry Supply Group proposed to become flexible and commercial as processes require
Market delivery by post-harvest possible – Zespri maintaining customer contact
20 members – 11 elected regionally and 9 appointed by supply entities
Onshore committee rationalised into Grower Council
Upgraded Zespri monitoring and reporting to growers
Zespri Funding
New transparent system clearly identifies cost for NZ fruit by variety
Collaborative Marketing
Being re-worked – growers asked for their views on what it should be: Wealth creating?
Innovative? Lead market development? Integrate into Zespri’s marketing plans? Include
Strategic Partnerships?
PVR ownership
Proposal is remains with Zespri: PVR’s can be best leveraged when market led
Proposed Time Line
Vision document is published and KISP Roadshows begin in August 2014
Submissions by the end of September 2014
Consolidated proposal out October 2014 and further submissions
Grower referendum in November 2014
Grower Council created and elected prior to Harvest 2015
Regulatory change, first half of 2015
Zespri Constitution change, mid-to-late 2015
GROWER ROADSHOWS
It is recommended that all growers attend a roadshow, as detailed below, to receive an overview of the KISP Vision
Document and make a submission to the KISP process.
AUGUST GROWER ROADSHOWS
Thursday 21
August
Monday 25
August
Tuesday 26
August
Wednesday 27
August
Thursday 28
August
Friday 29 August
Monday 1
September
Kerikeri
The Centre at Kerikeri, 43 Cobham Road, Kerikeri
10.00am - 12.00pm
Whangarei
A’Fare, 197 Lower Dent Street, Whangarei
2.30pm – 4.30pm
Hawke’s Bay
The Duke of Gloucester, 389 Gloucester Street, Taradale
10.15am – 12.15pm
Gisborne (night)
Bushmere Arms Hotel, Main Road, Waerengahika
5.00pm - 7.00pm
Opotiki
Opotiki RSA, 103/105 St John Street, Opotiki
10.00am – 12.00pm
Edgecumbe
Edgecumbe War Memorial Hall, Cnr Kauri St & Main Road
2.00pm - 4.00pm
Maori Growers Hui
Te Awanui Huka Pak, 221 Totara Street, Mt Maunganui
9.00am – 11.00am
Te Puke
The Orchard Church, 20 Macloughlin Drive, Te Puke
3.00pm - 5.00pm
Tauranga
Village Hall, Historic Village, 17th Ave West, Tauranga
9.30am – 11.30am
Katikati
Katikati War Memorial Hall, Main Road, Katikati
2.00pm – 4.00pm
Auckland
Counties Inn, 17 Paerata Road, Pukekohe
9.00am – 11.00am
Waikato
Prince Albert, Victoria Street, Cambridge
1.30pm – 3.30pm
Nelson
Top 10 Holiday Park, 10 Fearon Street, Motueka
11.30am – 1.30pm
5
OPENING STATEMENT
Dear New Zealand Kiwifruit Growers,
You own an industry that is successfully emerging from three years of unprecedented challenges into a global environment
characterised by massive and enduring change.
The industry and the competitive environment in which it operates today are vastly different to 15 years ago when the
regulations that underpin your industry came into place. Back then emerging issues such as grower control, plant variety
rights, China, 12-month supply, global supermarket power, industry consolidation and large corporate ownership were
either marginal or did not exist.
Now these issues are increasingly influencing the future. The New Zealand industry and each individual participant is in
a race to secure their long-term future and the legacy of their businesses and families in this increasingly dynamic and
hugely competitive global environment.
Now is the time to future-proof your industry. It is important for the industry take the time to review its position in this
newly emerging world and to determine how to build on the achievements of the past to achieve even greater success into
the future.
The Kiwifruit Industry Strategy Project (KISP) is being undertaken to build the best possible future for the New Zealand
kiwifruit industry and for each of its individual stakeholders. We are setting the platform for the industry’s growth for the
generations ahead.
At KISP’s heart, is the objective of delivering sustainable wealth to New Zealand kiwifruit growers, the wider kiwifruit
industry and the communities that rely on our industry. This will require the commitment of all industry participants, a
recognition that some decisions will have short-term pain to achieve long-term benefits and that the transition steps will
often be challenging.
But with the support of all industry participants, a better future is assured.
My role as independent chairman of KISP is to run the most robust and inclusive process that is reasonably possible.
KISP starts with the simple proposition that the New Zealand kiwifruit industry has a history of high performance. This
means that the system is not broken but it does need to be strengthened and future-proofed by putting growers at its
heart and ensuring it has the strategy and structure to protect and further enhance its leading position in the global
competitive environment.
The KISP project team has investigated all significant existing and emerging issues. My role has been to ensure that we
collect all relevant facts, appropriately use internal and external expertise in our fact-finding and deliberations, consult
widely with all industry stakeholders, be open-minded and creative in evaluating all of the inputs and ultimately make the
best decisions for growers and the industry’s future.
Stage 2 of the KISP process is building upon the significant industry consultation and feedback received in Stage 1. That
initial consultation process gave the KISP Group a very clear idea of the major concerns to growers. Since then the seven
working groups have undertaken an enormous amount of work to arrive at this further round of consultation.
It is now critical that the industry engages in informed, fact-based conversations and analysis to understand what is being
proposed.
If we all get these building blocks right, the future of growers and the wider industry is extremely bright. For this reason
the level of industry engagement in informed decision-making is extremely important.
Please get involved. I encourage all growers and other industry stakeholders to make your voice heard in an informed and
positive manner.
This is your industry and your future.
Yours Sincerely,
Neil Richardson
KISP Independent Chairman
6
MAORI IMPACT STATEMENT
Kia ora tatou. Nga mihi atu ki o koutou ma.
As Neil Richardson has already outlined, the Kiwifruit Industry Strategy Project is now asking growers for views on how the
New Zealand kiwifruit industry can maximise returns to growers, and position the industry for long term success.
Maori are already a significant part of this industry, contributing some 10 percent of total industry volume and generating
$100 million dollars’ worth of export receipts.
I firmly believe there is tremendous opportunity and scope for those volumes to increase through effective orchard
management techniques and new kiwifruit developments on large tracts of land that Maori own or control.
Given how this industry creates wealth for so many of our people - either through orchard ownership, post-harvest
investment or industry employment - it is important that Maori growers and industry stakeholders are aware of the
implications of this project and that you make sure your views are put forward in this consultation process.
The feedback I hear from Maori is that the Single Point of Entry (SPE) is the right structure for this industry, but that we
need to make sure that it is a high performing industry for growers to ensure it serves all those who depend on it for their
livelihoods.
This project is proposing to make a number of changes that go toward meeting this goal. This document traverses a
range of areas that impact on Maori growers, such as changes to industry governance, and the role of iwi in this new
governance structure. It also examines collaborative marketing structures, industry ownership, funding arrangements, and
supply chain effectiveness.
It is important that we get this right. We have a responsibility as Kaitiaki to ensure our future generations inherit a vibrant
and successful industry. This project’s long term and intergenerational view of maximising the wealth of our community
aligns with the ambitions of Maori, and it is in our interests to make sure our views are heard in this process.
The future of this industry is in the hands of all growers and I encourage Maori growers to participate and to put forward
your views, both where you support the proposals and where you oppose.
Noho ora mai
Neil Te Kani
Iwi representative on KISP group.
7
INDUSTRY TIMELINE
The Kiwifruit Industry Strategy Project is another chapter
in the industry’s collective history of proactively working
together to ensure that it continues to perform in the best
interests of growers. A brief summary of that history is
outlined here so growers can place the Kiwifruit Industry
Strategy Project in the context of the industry’s history.
The Beginnings
The kiwifruit industry in New Zealand is youthful in
comparison to many other primary industries. Its real
commercial beginnings sit in the 1960s.
The first industry body, the Kiwifruit Export Promotion
Committee, was formed in 1970. This led to the New
Zealand Kiwifruit Authority (NZKA), which in its initial
form, dates back to October 1977. Its structure was
very different to what exists today. Its role was to license
exporters - such as Turners and Growers, the New Zealand
Fruitgrowers’ Federation and Auckland Export - and at
its peak had up to seven exporters licensed. As well
as licensing, the NZKA co-ordinated packaging and had
authority over export grade standards and promotion.
But, it had no control over sales and marketing activities.
1980s
From the mid-1980s, the volume of kiwifruit started to
increase significantly, as did the number of exporters.
In 1981, for example, 22,000 tonnes of kiwifruit were
exported. By 1987, that had risen to 203,000 tonnes.
Over the same period the return to growers per tray had
dropped from $7.84 in 1981 to $3.00 in 1987 (prepacking charges which were around $2 per tray.) This
resulted in 91 percent of growers making a loss from their
kiwifruit operations.
At this time there was much debate over the advantage of
a single desk (known today as Single Point of Entry) over
multiple exporters. In 1987, as a result of heated debate
on the topic, the NZKA engaged a consultant’s report. A
referendum was then held in September 1988 and growers
voted in favour of moving from multiple exporters to a
single desk system. The New Zealand Kiwifruit Marketing
Board (NZKMB) then came into being and its first season
of operation was 1989/90.
8
1990s
The 1992/93 season was a disaster for the New Zealand
kiwifruit industry. New Zealand and international kiwifruit
volumes continued to grow and problems came to a peak
during this season, as a result of various factors including
bad management and governance. The NZKMB got into
serious difficulty. Growers were over-paid and massive debt
was the result. The NZKMB - under the leadership of John
Palmer and with strong grower support - reacted decisively,
and the debt was paid off over the ensuing 18 months.
As a result of what had occurred, the industry put in place
a three-stage review that incorporated major structural
change.
1. New Zealand Kiwifruit Growers Incorporated (NZKGI)
became operational in July 1994.
2. Marketing and branding was reviewed and the
recommendation that resulted led to the creation of
the Zespri brand, which was launched in the 1996/97
season, and the creation of Zespri as a separate
marketing and sales organisation.
3. Corporatisation, collaborative marketing and the
industry’s operational structures were looked at and
a report presented to NZKGI. A referendum was held
and the structure of the industry altered in 1996/97
to include: Zespri as a marketing company, an NZKGI
Forum, and NZKMB (which remained in existence.)
(New legislation was not required to make these
changes.)
The positive results of the three-stage review included
the formation of the Zespri business, the establishment
of collaborative marketing, and a more efficient onshore operational structure. The three-stage review also
incorporated 12-month supply, new varieties and plant
breeding. It was in 1997 that Zespri Gold was launched
on a commercial basis. It was the first time there was an
alternate successful variety to the Hayward.
Furthermore, the three stage review formed the basis of
today’s kiwifruit industry, and the way in which it operates.
Corporatisation was a key talking point. A recommendation
of the three-stage review was that the kiwifruit industry
would become a corporatised business with a productionbased share-holding concept. This was not approved by the
local Government of the day. A co-operative company was
not an option; a standard corporate was. This remains the
case today. What Government did concede, however, was
that the industry’s single desk status could remain.
The early 2000s
April 1, 2000 saw the launch of the Zespri Group Ltd –
Zespri was officially corporatised. All growers at that time
became shareholders in Zespri Group Ltd, with the number
of shares relevant to tray production. This was a point
in time when alignment existed between production and
shareholding.
The following year saw turmoil within the Apple and
Pear Board, which was taken over and subsequently
deregulated. The kiwifruit industry structure was different
in that only growers could have shares.
In 2001, a change to the kiwifruit legislation occurred.
A voting cap was introduced to ensure growers retained
control of the industry. The maximum number of votes a
grower could have was based on production and hence
a direct link between production and voting rights was
established.
No further significant review of the kiwifruit industry was
held until the current KISP was launched last year.
9
KISP FINAL PRINCIPLES
During Stage 1 of KISP, there were 400 written submissions
received, and verbal feedback provided from meetings
and forums. This was during November and December
2013. In summary, three broad themes emerged from the
submissions and feedback:
•Ownership and Control of industry structure, Zespri, R&D
and PVRs
•Performance and Transparency of SPE, Zespri, and postharvest – with a particular focus on grower returns
•Governance of the wider industry and of Zespri
A fourth theme, not covered in the draft key principles,
emerged, which was the need for the industry to be underpinned by a deeper set of principles which commits it to
sustainability in regards to the environment, economy,
society and governance.
Following consideration of the submissions, the KISP
Working Group refined the KISP Principles and on 19
December 2013 released the final principles, which are set
out below. The KISP Working Group was then divided into
Issue Working Groups to address in greater detail each
principle and the submissions received from the industry.
5. Zespri’s purpose is to be the “best in class”
international branded-kiwifruit sales and marketing
organisation, in order to ensure a sustainable New
Zealand kiwifruit industry that maximises New Zealand
kiwifruit grower returns.
6. Zespri-branded kiwifruit is the best available kiwifruit
around the world 12 months of the year for the overall
benefit of New Zealand kiwifruit growers. **
7. The New Zealand kiwifruit industry must have a
process to evaluate and implement genuine, innovative,
commercial and marketing ideas, including collaborative
marketing., This will be aligned with Zespri’s global
marketing strategy and for the long-term benefit of New
Zealand kiwifruit growers.
**The Group will consider the implications of the industry
strategy to non-New Zealand supply businesses and
consider how the risks and rewards from the activity are
captured by Zespri and how the profits are used.
SUPPLY CHAIN EFFECTIVENESS
These are the final principles that were developed following
the grower submissions from Stage 1 of KISP. These final
principles were the basis and frame for all discussions by
the KISP Group and individual Issues Working Groups.
8. The New Zealand kiwifruit industry must have an
efficient, competitive and responsive onshore postharvest sector that is aligned with the industry
strategy, offering grower choice that is integrated into
an efficient global supply chain.
9. The New Zealand kiwifruit industry must have a worldclass global supply chain from orchard to consumer.
10. Zespri’s payment system for New Zealand-grown
kiwifruit must reflect commercial signals based on inmarket returns.
KISP FRAMEWORK
INNOVATION
The New Zealand kiwifruit industry must act responsibly
and ethically on all economic, sustainability, environmental,
social and regulatory issues to the benefit of New Zealand
kiwifruit growers and the wider New Zealand community.
SINGLE POINT OF ENTRY
1. T he Single Point of Entry is retained and enhanced to
maximise its performance for New Zealand kiwifruit
growers.
INDUSTRY GOVERNANCE
2. Given the increasingly competitive international market,
Zespri governance must meet world-best practice
standards so that it delivers on its Purpose (Principle 5).
3. E
ffective leadership and governance of all industry
structures must be supported by effective New Zealand
kiwifruit grower control, representation and consultation.
ZESPRI OWNERSHIP
4. N
ew Zealand kiwifruit growers must own and control
Zespri, and be the main beneficiaries of Zespri
performance*.
*In considering submissions on Zespri ownership, the Group
will consider all aspects of ownership, including alignment
with production.
10
MARKETING
11. To maximise the New Zealand kiwifruit industry’s
global competitive advantage the New Zealand kiwifruit
industry must continue to develop and implement
a world-class and sustainable Research and
Development (R&D) programme.
12. As an integral part of the SPE, the New Zealand
Kiwifruit Industry must have the ability to develop, own,
licence, control and maximise the value generated
from the world’s leading portfolio of kiwifruit PVR
varieties.
FUNDING
13. Zespri is funded and remunerated appropriately
to ensure it can deliver the full scope of its
responsibilities.
EXECUTIVE SUMMARY
The seven Issues Working Groups (IWG) have outlined a
summary of their reports. If you would like further detail
please refer to the individual reports from each of the
working groups that follow.
GROUP MEMBERS:
Key findings:
•The SPE was overwhelmingly supported by growers and
therefore KISP has not recommended that the marketing
structure change
•The SPE must continue to perform for growers
•The remaining working groups will be responsible for
maximising the SPE’s performance for growers through
their proposals.
Neil Trebilco (Chair)
David Pilkington
Doug Voss
EXTERNAL EXPERTS:
Alasdair MacLeod (Growth Solutionz)
The key principle considered by
this group:
The Single Point of Entry is retained and enhanced to
maximise its performance for New Zealand kiwifruit
growers.
Key issues raised in Stage 1
submissions and considered by
the Working Group:
•Most comments were strongly supportive of the SPE,
with these often referring to experiences under the
previous multi-exporter systems and the pressures that
put on the financial viability of growers
•The second largest set of comments focused on the
performance of the SPE. In this group, the submitters
said they supported the SPE, but that support was
conditional on the SPE performing, and being proven to
perform, for all growers
•The few comments focused on the need for a more
competitive environment did so based on the need for
Zespri to be challenged to ensure it was performing at
its best.
11
INDUSTRY GOVERNANCE
GROUP MEMBERS:
Peter Ombler (Chair)
David Pilkington
Peter McBride
Mike Smith
Doug Brown
EXTERNAL EXPERTS:
Murray Gough (ex-Fonterra)
Lisa Denyer (Cooney Lees and Morgan)
Stephen Goodger (Fonterra)
Philip Gregan (NZ Grape Growers Council)
The key principles considered by this
group:
•The New Zealand kiwifruit industry must act responsibly
and ethically on all economic, sustainability,
environmental, social and regulatory issues to the
benefit of New Zealand kiwifruit growers and the wider
New Zealand community
•Given the increasingly competitive international market,
standards so that it delivers on its purpose
•Effective leadership and governance of all industry
kiwifruit grower control, representation and consultation
submissions and considered by the
working group:
•That Zespri must maintain a high level of integrity and
transparency
•That Zespri should aspire to set and reach, or exceed,
international benchmarks in key metrics
•That directors need to be the best available regardless
of whether they are growers or not
•That the industry cannot afford any more issues (i.e.
China), which give politicians chance to question the
industry
A small number of submitters raised broad-ranging
concerns over Zespri’s performance, culture and
management and linked this to potential damage to the
Zespri brand. These submitters were more than balanced
by the majority of submitters who believed Zespri was
doing a good job.
Key findings:
The group believes that the number of industry committees
and groups need to be rationalised and condensed into
fewer groups to be more effective in driving the best
possible performance from the Single Point of Entry. The
Grower Council will be a competent, representative body
12
external to Zespri, which will provide a robust and accurate
industry analysis to growers on:
•The performance of Zespri, post-harvest and other
industry organisations
•The process for the management of: grower payments,
grower funds, grower levies
•The development and performance of: the supply
agreement and supply chain issues.
It will also form views on grower equity and industry
strategic issues.
It was decided that the key group to be formed would be
a Grower Council. A Grower Council would replace the
following bodies: NZ Kiwifruit Growers’ Incorporated Forum
(NZKGI), Industry Advisory Council (IAC), and Development
Groups. It would also absorb the grower equity functions of
the Industry Supply Group (ISG).
The key function of the Grower Council will be to monitor
and report to growers on Zespri’s - and other industry
organisations’ - performance. Therefore, it is not a
decision-making body, but an advisory board. The Grower
Council will be a representative body.
Other key changes involve the
following proposals:
•That Zespri’s constitution is amended to provide for
three independent directors change here to be nominated by the Zespri Board and ratified one every
year at the AGM
•That the KNZ Board has appropriate independent
commercial and marketing experience.
Summary of key issues raised by
growers in this first consultation
period:
Three broad themes emerged from the submission /
feedback process:
1. Ownership and control of industry structure, Zespri,
Research and Development and Plant Variety Rights
(PVRs)
2. Performance and Transparency of Single Point of Entry
(SPE), Zespri, and post-harvest – with particular focus
on grower returns
3. Governance of the wider industry and of Zespri
Submissions received on the Principles considered by the
Governance Group stressed the importance of adhering to
best international practice, the need to support leadership
development within the industry and the need for directors
to hold Zespri executive to account against a set of KPIs.
ZESPRI OWNERSHIP
GROUP MEMBERS:
Doug Voss (Chair)
Ray Sharp
Peter Ombler
Peter McBride
Mike Smith
Craig Greenlees
EXTERNAL EXPERTS:
Alistair Hercus (Buddle Findlay)
Craigs Investment Partners
Key principle considered by this
group:
New Zealand kiwifruit growers must own and control Zespri
and be the main beneficiaries of Zespri performance.
Working Group:
The overwhelming majority of comments reinforced the
grower expectation that this strategy review will address
the issue of alignment.
Other – and associated - issues raised included:
•The need for a pure co-operative
•The need for a better shares and production alignment,
but not necessarily a co-operative
•Dry shareholders should sell their shares
•There should be a cap on the over-shared
•External capital should be considered to drive
performance.
Currently there are people who:
1. Have shares in excess of their production. A sale of
excess shares will be required.
2. Have retained shares despite no longer owning
orchards. Shares should be sold with orchards.
A three year sales timeframe should apply to all those with
excess shares.
•There is a need to redefine the definition of “grower”.
There are two categories of people who can be the
grower and have the right to own shares. They are:
(1) The kiwifruit orchard landowner and (2) Medium
term lessee NB: The report includes the new definition
of medium term plus explains landowner voting and
shareholding rights
•There is a need to encourage active participation.
Growers who do not have shares will be encouraged to
buy them to achieve the advantages of one vote to one
tray
•It is recommended that Zespri will assist these growers
in their share purchase by ensuring the availability of
shares, and providing financial assistance to purchase –
for example, a dividend reinvestment plan
•There is a need to have a share trading mechanism
that is easy to follow to further encourage active
participation.
NB: It is acknowledged there will need to be changes to
both the Kiwifruit Export Regulations and the Zespri Group
Limited constitution to implement the proposal.
Key findings:
•It is recognised that the Zespri SPE business needs
to be under-pinned by the highest possible alignment
between production of an individual grower and the
shares they own
•While the voting cap of one-to-one (one share per
one tray of production) will remain there is a need to
introduce a system whereby growers can own shares in
excess of their production, but not more than a ratio of 2
to 1 (two shares per one tray of production)
•It is recognised that a mismatch exists - and is growing
over time - in terms of share ownership. An alignment
is required to avoid having less participating growers in
relation to shares on offer.
13
MARKETING
GROUP MEMBERS:
Peter McBride (Chair)
Peter Ombler
Doug Brown
EXTERNAL EXPERTS:
David Cullwick (Innomarc)
Key principles considered by this
group:
•Zespri’s purpose is to be the “best in class”
organisation in order to ensure a sustainable New
kiwifruit grower returns
•Zespri-branded kiwifruit is the best available kiwifruit
around the world 12 months of the year, for the overall
benefit of New Zealand kiwifruit growers
•The New Zealand kiwifruit industry must have a
process to evaluate and implement genuine innovative
marketing, that is aligned with Zespri’s global marketing
strategy, and provides long-term benefit to New Zealand
kiwifruit growers.
Working Group:
•That Zespri must focus first on being the best marketer
and on maximising returns to New Zealand growers
•That Zespri should continue to be the largest kiwifruit
company in the world and grow an even greater presence
•That 12-month supply must not detract from Zespri’s
core role of maximising returns to New Zealand growers
•That 12-month supply does not involve sourcing volumes
abroad inside the NZ selling season
•That 12-month supply must not compromise Zespri’s
brand and reputation in terms of quality, standards and
food safety
•That Zespri must include the organic category in its
12-month supply
14
Key findings:
•Zespri has a sophisticated and well-established strategy
and five year planning cycle to develop and market the
leading range of premium kiwifruit product globally
•Zespri does measure how it performs, including:
premium achieved, market share, category market
penetration, proportion of heavy kiwifruit consumers by
market, brand position, brand awareness and repurchase
rates
•Zespri’s 12-month supply enhances consumer loyalty
and strengthens the position of key distribution partners
when increasingly competitive alternatives are emerging
•12 month supply will be a significant income stream for
Zespri in the future
•Growers must consider the group’s findings in relation
to Zespri’s performance and 12-month supply in the
context of proposals by the Industry Governance, Zespri
Ownership and Zespri Funding working groups
•Collaborative marketing, as it presently operates,
has generated a high level of frustration. However,
Collaborative Marketing has the potential to be an
important catalyst for wealth creation through future
global market developments and value chain innovations
to complement the activities of Zespri.
GROUP MEMBERS:
Craig Greenlees (Chair)
Ray Sharp
Neil Trebilco
Doug Voss
Doug Brown
EXTERNAL EXPERTS:
Senior post-harvest representatives
Senior grower entity representatives
group:
•The New Zealand kiwifruit industry must have an
efficient, competitive and responsive onshore postharvest sector, that is aligned with the industry strategy,
offering grower choice that is integrated into an efficient
global supply chain
•The New Zealand kiwifruit industry must have a worldclass global supply chain from orchard to consumer
•Zespri’s payment system for New Zealand-grown kiwifruit
must reflect commercial signals based on in-market
returns.
Working Group:
•But, to ensure this competition is maintained and
enhanced there needs to be:
a. Greater transparency of post-harvest performance
both on-shore and off-shore
b. Greater flexibility in contracting between grower/
supply entities and Zespri to allow greater innovation
and agility
c. Growers and supply entities need a greater awareness
and understanding of the issues around grower and
supply payments
•Commercial payments based on in-market signals must
drive on-orchard behaviour; to do otherwise would create
significant consequences for fruit characteristics and
supply effectiveness
•Zespri, as the industry’s sales and marketing channel,
must be responsible for defining product specification
and timing to customers.
The group was also asked to consider the effectiveness
and appropriateness of the current Supply Contract
process. In line with this, it recommended that:
•Zespri should contract with the Supply Entity whom it
pays for the growers’ fruit. The Supply Entity will in turn
contract with its growers and with post-harvest and other
logistic providers for the necessary services
•Growers must consider this recommendation in the
context of the proposals of the Industry Governance
Working Group.
•That the responsibility for an efficient supply chain rests
with all parts of the New Zealand kiwifruit industry’s
supply chain, not just Zespri
•That there needs to be greater transparency and
accountability by the post-harvest sector to ensure it is
acting in the interests of growers and ensure growers
retain control of their industry
•That there needs to be more room for innovation in the
supply chain to allow post-harvest to use its expertise
beyond FOBS; however innovation must not weaken
Zespri’s role as the industry’s marketer
•That the Supply Contract and grower payment processes
must be made more transparent and easy-to-understand
for growers
•That in-market commercial signals must drive on-orchard
behaviour and growers must be paid in relation to these
signals.
Key findings:
•That the competitive post-harvest model is the most
effective way to deliver kiwifruit from orchard to ship
(FOBS) as it: spreads risk, drives better service to
growers, allows for grower choice
15
INNOVATION
GROUP MEMBERS:
David Pilkington (Chair)
Peter Ombler
Mike Smith
Neil Te Kani
EXTERNAL EXPERTS:
Dairy NZ
group:
•In order to maximise the New Zealand kiwifruit industry’s
global competitive advantage the New Zealand Kiwifruit
Industry must continue to develop and implement a
world-class and sustainable R&D programme
•As an integral part of the SPE, the New Zealand kiwifruit
industry must have the ability to develop, own, licence,
control and maximise the value generated from the
world’s leading portfolio of kiwifruit PVR varieties.
Working Group:
•Innovation was a critical industry-good function, which
had delivered a tremendous amount of value to the
industry over time
•As such it needs to be managed by a pan-industry
body to get the necessary scale of investment and
dissemination of knowledge to benefit the industry
•That Zespri is best placed to manage the innovation
function, but it must ensure the innovation programme is
open to the best ideas and open to partnering with thirdparty providers
•A small number of submitters expressed a counter-view
that the innovation function should be removed from
Zespri and either invested in another pan-industry body
as an industry-good function, or be left to competitive
tender
•A small number of submitters felt that ownership of
PVRs should be removed from Zespri and put into a
grower trust to ensure grower control of the PVRs was
retained
Key findings and recommendations:
Overall, it was felt that a market-led, pan-industry
innovation function was critical to support both a worldclass sales and marketing organisation and to deliver
sustainable wealth to New Zealand kiwifruit growers. In line
with this, the group recommends that:
•Zespri is the appropriate body within the kiwifruit industry
to coordinate and manage the innovation function
•Co-opting subject matter experts from across the
industry as project team members on specific projects
16
is an appropriate mechanism to engage wide industry
participation
•Ownership of PVRs should remain with Zespri to
ensure alignment of investment in breeding with
commercialisation responsibilities. Zespri is to be
charged with managing the future risk around PVRs to
ensure ownership and access for NZ kiwifruit growers
•Zespri should continue to manage and/or coordinate onorchard R&D and technology transfer. Given the growers’
direct stake in this activity, the Growers Council, on
behalf of growers, should maintain visibility and oversight
of the annual programme.
FUNDING
GROUP MEMBERS:
Craig Greenlees (Chair)
Doug Brown
David Pilkington (Nathan Flowerday)
Doug Voss
Neil Te Kani
EXTERNAL EXPERTS:
PWC
Craigs Investment Partners
Key principle considered by this
group:
Zespri is funded and remunerated appropriately to ensure
it can deliver the full scope of its responsibilities.
Varieties and 12-months supply are excluded from the
calculation of the margin on New Zealand fruit
•Transparency is a requirement
•Zespri is a commercial business and should act
accordingly
•Zespri must have KPIs with industry (e.g. OGR, fruit and
service per tray) and Zespri’s remuneration must be
commercially relevant
•Alignment will be addressed by the Zespri Ownership
Issues Working Group.
Medium Term Funding
Zespri’s medium term funding requirements are still a work
in progress. However, the following key point was noted:
•Zespri needs to build its capital base to cover growing
volume and risks associated with the business.
working group:
The vast majority of submitters agreed with the
principle that Zespri should be funded and remunerated
appropriately to ensure it can deliver the full scope of its
responsibilities.
A number of other comments were made and these
included:
•The need for Zespri, as a service provider, to have its
scope set and returns linked with grower returns
•Zespri funding should be based on its ability to deliver
OGR to the growers
•Funding should be performance-based so income
reduces in poor years
•Zespri needs to be funded to a level to allow it to
successfully deliver its role
•Ensure Zespri does not get strangled to the point there
is very little incentive to act in a commercial risk-taking
environment.
Key findings:
These are divided in terms of annual funding and medium
term funding.
Annual funding
volume and risks associated with the business
•Zespri must act in the best interests of growers (i.e. as if
it owned the total industry) with a long-term perspective
and also needs the most appropriate cost control and
division between Zespri and the pool
•Both New Zealand and offshore growers must pay
their fair share of Zespri costs (by variety pool and
collaborative marketing)
•Zespri’s earnings and costs from Capital Funds, PVR
17
WORKING GROUP REPORTS
SINGLE POINT OF ENTRY WORKING GROUP REPORT
Introduction
The principles applicable to this working group are:
•“Zespri needs a shake-up and competition”
•“Growers should be able to associate with who they
choose to export their fruit”
KISP FRAMEWORK
Working Group’s Approach
social and regulatory issues, to the benefit of New Zealand
1. The Single Point of Entry is retained and enhanced to
maximise its performance for New Zealand kiwifruit growers.
Submissions on the Single Point
of Entry
The majority of the submissions received on Principle 1,
the Single Point of Entry, gave unwavering support for the
SPE and stressed that Principle 1 is the key principle that
must underline everything else that the industry does. Some
submitters referred to their experiences under the previous
multi-exporter system and the pressures that put on the
financial viability of growers. Among the comments were:
•“the industry will fail without it”
•“absolutely essential to the success of the industry”
•“our biggest single asset”
•“without the SPE, growers will become embroiled in a
race to the bottom”
•“no debate, non-negotiable”
The second largest set of comments focused on the
performance of the SPE. In this group submitters said they
supported the SPE, but that support was conditional on
the SPE performing, and being proven to perform, for all
growers. Among the comments were:
•“I support it but it must perform”
•“The SPE must not exist to the detriment of growers”
•“need data to support this statement”
•“too important or valuable to be interfered with”
•“By definition we would question the word sacrosanct”
Comments that focused on the need for a more
competitive environment, did so based on the need for
Zespri to be challenged to ensure it was performing at is
best. Among the comments were:
• “A dairy industry model with a dominant player and others
snapping at their heels may be the most efficient model”
•“Collaborative marketing must be available for innovative
ideas”
18
Due to the overwhelming level of support in the
submissions for the SPE, the KISP Group decided
collectively - with approval from the Independent Chair
- that the SPE marketing structure was not going to
be changed through the KISP. It was identified that the
remaining project groups were responsible for ensuring the
performance of the SPE.
As a consequence, the group commissioned the services
of independent expert Alasdair MacLeod, who was a key
member in developing the Horticulture New Zealand 2020
strategy and the Red Meat sector strategy report, and was
asked to present his expert views on the SPE. Alasdair’s
report follows, titled ‘The need for an SPE’. Alasdair’s
biography and industry performance data can be found in
Appendix 1.
The need for an SPE
There is often debate about the continuing need for the
SPE model in the case of kiwifruit. Some have taken this
debate to court, arguing (so far, unsuccessfully) for the
removal of the SPE model. Given the debate, it is worth
covering some of the key facts that provide context – why
do we need an SPE model?
Firstly, across the globe, scale is growing in all the key
dimensions that have an impact on primary sector suppliers:
•Retail – retailers are huge businesses with enormous,
and growing, power. For the most part, they use price as
a differentiator and as a draw card. They delegate control
of procurement to Category Managers who have no
interest in long-term relationships. They are unashamed
about using their scale leverage to drive down the
prices that they pay to suppliers and keeping suppliers
competing with each other on price is very much to their
advantage. They are not in business to make life easy,
or profitable, for growers. The current SPE balances the
use of competitive and single desk approaches by using
a single desk to ensure critical mass in activities such
as cultivar development and brand promotion and market
development, or counter the market power of competing
and purchasers
•Supply – big players are getting bigger. This is a
combination of normal merger and acquisition activity, and
deliberate agglomeration approaches by businesses that
are taking advantage of the exit of older participants
•R&D – The easy breakthroughs have been made. The next
big step in disease control or yield enhancement or taste
refinement (or all three combined) will not be cheap. On a
world stage, it is possible that a big supplier can afford to
fund the required R&D over the multiple years required. In
New Zealand, there are almost no individual companies
that can afford this level of investment
•Brand development – developing, and sustaining, an
international retail brand in the food sector is now
predominantly the preserve of the scale player
Against this picture of growing scale, how does New
Zealand stack up?
•From both business and population perspectives,
New Zealand is tiny. Even our biggest businesses are
relatively small on the global scene, and our domestic
market is too small to sustain businesses that have
international aspirations
•The primary sector cannot afford further fragmentation.
Across the entire primary sector, we are bedevilled
with needless competition and in many cases a lack
of collaborative behaviour. With few exceptions, we
continue to compete with each other rather than seeing
the real competition as being the other countries that we
collectively need to compete against
•As was clearly identified in the New Zealand Horticulture
Strategy, we need scale, or proxies for scale, in order to
continue to be relevant. There is a range of models available
to provide proxies for scale, ranging from buying groups
all the way through to the Government-mandated Fonterra
model or the SPE model enjoyed by the kiwifruit industry
•Despite the scale that accrues to the industry as
a result, this does not deliver a monopoly in the
international marketplace. It is also worth reminding
ourselves that kiwifruit globally accounts for less than
0.5% of the total fruit bowl
The collaborative model enabled by the SPE allows for the
development of real scale in the real world.
•A world of retail power as discussed briefly above. The
SPE model allows New Zealand kiwifruit growers, through
Zespri, to compete on an equal footing with the other
scale participants in the supply chain and to achieve
price premiums in several markets.
•A world of disease – and, as the sector is only too well
aware, the risks to a monoculture environment does not
diminish simply because there is the potential to develop
Psa-tolerant cultivars. The SPE has delivered a highly
effective programme to achieve premium returns for
kiwifruit through product branding and development and
commercialisation of new cultivars. The development and
commercialisation of Psa resistant cultivars is necessary
for the recovery of the gold kiwifruit productivity which in
turn is a key driver of export revenue growth. Accordingly
preservation of the SPE is a key contributor to the
recovery of the kiwifruit export revenue. In addition
to the need for scale to invest in long-term cultivar
development, there is also the need for scale to confront
the challenges of biosecurity
•A world of often unfair competition – sometimes assisted
by Governments. There is no question that some
countries have been persuaded by their horticulture
sectors to lobby vigorously for Free Trade Agreements
that provide significant advantages relative to NZ. While
New Zealand does fight hard to get even-handed FTAs
negotiated, there is a limit to how many sectors can
achieve preferential access – and the horticulture sector
in New Zealand will always have to play second-fiddle to
the dairy sector
However, there are risks associated with an SPE model.
Without constant and influential scrutiny, the SPE model
can result in an organisation that:
•Is bureaucratic and out of touch. The growers get
progressively disenfranchised and the power of the
organisation becomes overwhelming
•Is focused on its own existence rather than on those it
should be serving – it becomes an end in itself rather
than a means to an end
•Adds a level of compliance complexity and cost that
ultimately swamps the benefit of what it was set up
to achieve. There is ample evidence locally from the
experiences of pipfruit growers in the final days of their
regulated Apple and Pear Marketing Board
The long term survival of the SPE depends on its ability to
convince growers that it is managing challenges to longterm grower returns more effectively than other forms of
industry structure could. Given that this task hinges on the
ability to deliver as well as communicate results, it creates
a powerful performance-based incentive structure.
So, if SPE models are not without risk – what are the
alternatives?
There is an alternative, which is the removal of the SPE
model and allowing the market to prevail. After an initial
period of euphoria, there is likely to be:
•At least 5 years of disarray during which significant value
gets destroyed
•Profit taking by opportunists
•Exit of the smaller and the less profitable players
•Eventual survival of the fittest
The final outcome MIGHT be better…but the landscape will be
fundamentally different, and the cost will be high.
The above leads to the inevitable conclusion that, for those
who have given their lives to the industry and made their lives
through this industry, the SPE model is not just an option
but it is a vital necessity. It allows all industry participants,
regardless of size, to participate in a global supply chain with
a quality product that is impeccably branded and achieves
price premiums and market cut through.
For additional information please see Appendix 1.
19
INDUSTRY GOVERNANCE WORKING
GROUP REPORT
Introduction
The principles applicable to this working group are…
KISP FRAMEWORK
The New Zealand Kiwifruit Industry must act responsibly
INDUSTRY GOVERNANCE
2. G
iven the increasingly competitive international market,
standards so that it delivers on its purpose (Principle 5).
3. E
ffective leadership and governance of all industry
kiwifruit grower control, representation and consultation.
Submissions on Zespri Governance
Submissions received on Principle 2, Zespri Governance,
stressed the importance of adhering to best international
practice, the need to support the development of
leadership within the industry and the need for directors to
hold Zespri executive to account against a set of KPIs.
Comments included:
•“Zespri must maintain a high level of integrity and
transparency”
•“Zespri should aspire to set and reach or exceed
international benchmarks in key metrics. Needs careful
thought as to what metrics as it does need to win
everything”
•“Directors need to be the best available, regardless of
whether they are growers or not”
•“Cannot afford any more issues,(i.e. China) which give
politicians chance to question the industry”.
A small number of submitters raised broad-ranging concerns
over Zespri’s performance, culture and management and
linked this to potential damage to the Zespri brand. These
submitters were more than balanced by the majority of
submitters who believed Zespri was doing a good job.
Submissions on Industry Leadership,
Governance and Structures
Of all of the principles, Principle 3, had the strongest level
of support. However, many submitters raised concerns that
the current industry governance model is not delivering the
principle’s goal. Among the points raised were: that growers
are not listened to, that the system is at risk from grower
apathy, and that the industry model was set up 13 years ago
and it’s time for an overhaul (of all representative groups
20
including Industry Advisory Council (“IAC”), Industry Supply
Group (“ISG”), NZ Kiwifruit Growers Incorporated (“NZKGI”)
and Development / Product Groups). Also of concern,
according to points raised is that the industry is controlled
by a handful of Zespri employees, that there needs to be a
streamlining of current representative groups, and that the
system is cluttered with self-interest groups that hamper
good governance and decision-making.
A number of submitters commented on the need to
develop a strong leadership framework in the industry,
including bringing in outside expertise, and that this
framework should also have a focus on bringing through
the next generation of industry leaders.
Among the comments were:
•“Current representation system is fragmented (broken)
need to look to other industries for alternatives”
•“ISG has members who are driven by their own position
and self-interest, not the right outcome for all”
•“Zespri needs to engage with growers more directly and
not rely on post-harvest entities as the feedback”,
•“Alignment is required to gain strong effective
consultation, representation and leadership allowing an
improvement to the current situation”
•“The current system has too many representatives
and has become very clumsy with different sub groups
heading off here and there and everywhere. It is time for
us all to “group” and make sure that the people that we
do elect to represent us are the right people that we can
trust to make well considered decisions”
•“Zespri must stay connected to its supply base. ENZA
lost this and the industry deregulated”
•“Growers would be better served through a single
industry council in an environment where shareholding in
Zespri is largely aligned to production”.
There were also requests for greater transparency and
full reporting of all the industry’s operations, be they
run by Zespri or post-harvest / suppliers. This included
incorporating into the KISP NZKGI’s projects:
•Reporting from Zespri to permit NZKGI to maintain
effective monitoring of Zespri’s operations
•Improved supply chain and payment reporting, including
Zespri’s operation of the global grower pools, and an
assessment as to whether these pools should be
operated by a separate legal entity
•Validation of compensation models so that they are
independently verified and benefit the growers’ pools
•Post-harvest Orchard Gate Return (“OGR”) reporting
naming the operators; and
•Introduction of direct grower contracts with Zespri.
EXTERNAL INPUT
The submissions were reviewed and a proposal for
growers’ consideration was developed with the assistance
of the following external and industry independent experts:
•Stephen Goodger, Council Manager, Fonterra
Shareholders’ Council.
•Philip Gregan, Chief Executive, NZ Grape Growers Council
and Wine Institute of NZ.
•Murray Gough, Consultant.
•Lisa Denyer, Lawyer, Cooney Lees and Morgan.
The Group was also provided with comprehensive detail
on the Fonterra Shareholders’ Council and the setup of NZ
Grape Growers’ Council and Wine Institute of NZ.
Methodology
The submissions received were considered by the Working
Group and reviewed against the set-up in New Zealand’s
Dairy and Wine industries. A working model was then
developed and reviewed by the external and independent
1.
2.
experts. This model was then further refined and its
operating detail developed by the Working Group to
produce this proposal.
On-Shore Structures and
Contracting Relationship
SIMPLIFICATION
•The Working Group noted that a large number of the
submissions asked for the on-shore structures to be
simplified
•The Working Group reviewed existing structures – see
diagram (appendix 2) – and reached the view that a new,
simplified structure needed to be developed
•The Working Group decided that no on-shore function can
be lost from the groups whose roles are incorporated in
the Grower Council.
Proposals
THE GROUP DEVELOPED THE FOLLOWING
PROPOSALS:
Proposals
Rationale
Form Grower Council by amending NZKGI’s Rules.
The Grower Council replaces: NZKGI’s Executive Committee and
Forum, the Industry Advisory Council, the Development Groups
and the Industry Supply Group’s functions for grower equity and
industry strategic issues.
Consolidates onshore industry groups.
What are the Key Roles of the Grower Council?
•To provide growers with responsible and informed views on:
• The performance of Zespri, post-harvest and other industry
organisations
• The process for the management of: grower payments,
grower funds, grower levies
• The development and performance of: the supply agreement
and supply chain issues.
•To form views on grower equity and industry-strategic issues.
A competent, external-to-Zespri and
representative body providing robust and
accurate industry analysis to growers.
Although not a decision maker, the Council’s power comes from
its role to inform growers on key issues (so that growers can
make informed decisions) AND to reach views on key industry
issues influencing the decision making bodies.
Brings greater focus to key industry issues.
Involved in active interaction with Zespri and
other industry bodies.
Acting in the interests of growers (not Zespri
shareholders); therefore it is important that
the Grower Council is representative in order
to be effective.
Advisory Body – cannot effectively perform its
function if it is part of the supply chain and
other decision making – it is a key influencer.
See the draft Charter for the Grower Council in
Appendix 2.
3.
What are the Key Features of the Grower Council?
•Provides structured reports back to growers
•Reviews and comments to supply entities / growers on the
supply agreement and supply issues
•Ensures Zespri performance is assessed at a strategic level
against key indicators
•Neither controls Zespri nor is subservient to Zespri and must
be completely separate and independent from Zespri
•Powers (from Zespri’s Constitution) requiring Zespri to make
information available – amendments to Zespri’s Constitution
are being developed.
This is necessary to ensure the effective
performance of the Council.
Zespri’s Constitution to be amended – Grower
Council powers are to be similar to Fonterra’s
Grower Council powers.
21
4.
Reporting
The Working Group has decided that transparent, robust, groweruseful, timely reporting to growers is required, increasing both
grower trust and confidence in the industry and support for the
SPE.
•Zespri benchmarking, KPIs, oversight of pool operations and
annual grower report to be developed by the Grower Council
•Supply chain benchmarking, KPIs and annual grower report to
be developed by the Grower Council.
A draft list of KPIs and reports to be devised.
Work has started on this document, which the
Grower Council will further develop so that it
can effectively report to growers.
See Appendix 2.
5.
Links to the Supply Chain
The Grower Council has the supply chain roles of:
•Training supply entity members on the supply and payments
systems and governance and entity management; and
•Keeping supply entity members informed about supply
agreement, grower equity and strategic supply chain and
logistical issues.
Ensuring that growers have the skills to be
able to do the job that this proposal requires
of them.
Proposed changes to the current supply arrangements to ensure
growers’ interests are an area of key focus are:
•The Supply Agreement contracting parties are to be Supply
Entities and Zespri
•The Grower Council (at its option) may have observers
at meetings on the supply agreement and supply chain
operations between Zespri and Supply Entities
•Supply Entities to determine who will represent them at
meetings with Zespri on the supply agreement and supply
chain operations
•Zespri will run a commercially orientated supply chain
•The Industry Supply Group - as currently constituted - and
registered suppliers / suppliers are not part of the onshore
industry structures proposed here.
6.
7.
22
What is the composition of the Grower Council?
At present NZKGI has 37 elected members representing growers
from around NZ and growers on groups such as supply entities.
The Working Group considered this was too many members
to create an effective working body. A number of options were
considered. The following is recommended:
•Chairman and deputy chairman to be elected by the Grower
Council
•Executive Council of chairman, deputy chairman and 3 elected
councillors elected by the Grower Council, plus 1 co-opted
independent expert –member
•Grower Council: 10 elected regional representatives, a
maximum of 9 appointed Supply Entity representatives and
one iwi representative elected by the Maori Grower Council
•Maximum 20 Councillors.
This gives growers the power to be actively
involved, not only with the supply agreement,
but also supply chain operations.
Need very high calibre councillors who will
be commercially remunerated and from the
following regions: 1 from Northland, 1 from
Coromandel and Waikato, 1 from Katikati,
1 from Tauranga, 3 from Te Puke, 1 from
Edgecumbe and Opotiki, 1 from Gisborne and
Hawkes Bay and 1 from Nelson
Entities: 4% threshold for one councillor –
entities below the 4% threshold club together
– over 4% one member: e.g. APAC/MPAC,
Apata, DMS, G6, Seeka, OPAC, Eastpack,
Trevelyans.
Affiliates – grower groups can become
affiliates of the Grower Council.
This ensures that the people who own the
Grower Councillors need to be growers
orchards and grow the kiwifruit are elected
Grower Councillors need to have significant growing interests in
and appointed to the Grower Council.
their own right so that:
•Decision making is focused on grower commercial and political
well-being
•There is a focus on maximising grower returns
•Accurate, timely and useful information is provided to growers
•Conflicts of interest with post-harvest and supply company
executives can be avoided
•Grower confidence is maintained in the industry structures.
8.
Grower Council Code of Conduct:
Industry, not personal, representation - to act in the best
interests of the industry and growers.
•Duty to consult with constituents
•Required Ethical Standards
•Management of conflicts
•Protection of industry information
9.
Ingredients for a successful Grower Council
Programme to attract councillors with the right skills, attributes
and leadership capabilities
Selection of the Independent Executive Committee councillor to
enable the Council to have the required oversight of Zespri and
post-harvest
Development of Council processes to ensure the Council can
effectively meet its charter.
10.
Zespri board composition
•Number of independents on Zespri’s Board: - Three to be provided for in Zespri’s Constitution
- Nominated by the Zespri Board and ratified by AGM – this
will not be an election
•Further consideration is being given to removing the
restrictions from the Kiwifruit Export Regulations 1999
imposed on the Zespri Constitution. These restrictions no
longer serve any useful purpose.
Code for the Grower Council, but able to be
adopted by other industry organisations.
See the following Draft Code.
The Council is effectively resourced so as to
meet its charter.
At present there is no provision in Zespri’s
constitution for independent directors.
11.
KNZ Board composition
•Growers can make the KNZ Board more independent under the
existing rules:
- At present the KNZ Board is made up of four elected growers
and an independent chair appointed by the KNZ Board
- Regulations do not require the four elected members to be
independent or growers
•Relevant Commercial Expertise: It is recommended that NZKGI
appoint a director with commercial expertise
•Further consideration is being given to the structure of the
kiwifruit industry regulator and the regulations that are
enforced under the Kiwifruit Export Regulations 1999 - in
particular, the definition of “core business” in the Regulations.
Using the existing NZKGI power, NZKGI can
appoint one of KNZ’s directors with relevant
commercial expertise.
Growers can also vote directors, who are
independent of the industry yet have relevant
commercial expertise, onto KNZ.
KNZ needs to be fit for business.
12.
Other Organisations
•KVH – is a decision making body:
It cannot, therefore, be incorporated into the Grower Council
KVH represents all of the industry, including other exporters and
growers who do not supply Zespri.
KVH is the Management Agency for the
National Pest Management Plan and the
kiwifruit industry contracting party for the
Biosecurity Government Industry Agreement.
KVH collects biosecurity levies from kiwifruit
growers to fund its activities.
•HEA Product Group to Australia is a decision- making body –
the recommendation is that the Grower Council when formed
reviews:
- Whether it is performing a valid function in the Australian
market
- Whether it is facilitating increased grower returns.
Please find in Appendix 2:
1. Current industry structure diagram
2. Proposed industry structure diagram
3. Key change index between the current and the proposed industry structure
4. Draft charter of the Grower Council
5. Draft Grower Council code of conduct
6. Draft Zespri’s KPIs and reporting
23
ZESPRI OWNERSHIP WORKING GROUP REPORT
Introduction
KISP FRAMEWORK
The New Zealand Kiwifruit Industry must act responsibly
Other comments were mixed, from favouring a dual
ownership structure with A class shares for growers and B
class shares for outside investors, to the requirement not
to discriminate against the overshared as they had taken
the risk to make the investment. Comments also included
the belief that outside capital was needed to fund the
industry and keep Zespri performing, and that ownership
shouldn’t be based on trays as this is undemocratic - small
growers have no say under this model and voting should be
based on one KPIN/ one vote.
ZESPRI OWNERSHIP
4. N
ew Zealand kiwifruit growers must own and control
Zespri, and be the main beneficiaries of Zespri
performance*.
*In considering submissions on Zespri ownership, the Group
will consider all aspects of ownership, including alignment
with production.
The point was made that it needs to be very clear that
each principle has New Zealand growers at its heart. For
example the words “New Zealand” should feature before
the word “growers” in every principle. More specifically, it
must be made clear that Zespri must be owned by New
Zealand growers.
Submissions on Zespri Ownership
Regardless of the views held, the overwhelming majority
of comments said that growers are expecting this strategy
review to address the issue of alignment.
Comments here are divided into three broad categories:
•Need for a pure cooperative
•Need for better alignment, but not necessarily a
cooperative
•Comments from over-shared growers and some
supporting the need for external capital to drive
performance
Comments focused on the need for a pure cooperative
were based on the need for dry shareholders to sell their
shares and for shareholding to be aligned to production.
•“There should be no dry shareholders”
•“Shares and production must be aligned”
•“Need the correct mechanism for growers to share in
success”
The majority of comments on this principle focused on the
need for better alignment, but not a pure cooperative, with
a particular focus on finding a mechanism for removing dry
shareholders. The comments included the following:
•“Not all would need to own shares in proportion to
export trays greater than 80% alignment is OK”
•“Don’t believe in compulsion, but believe drys should go
and a cap on the over-shared”
•“Total agreement with the general principle but there is no
need for full alignment of shares with crop. Set a target of
say 80 or 90% and leave opportunity for choice”.
24
This document sets out the proposal of the Ownership
Working Group, formed as part of the Kiwifruit Industry
Strategy Project and tasked with considering how best to
give effect to Principle 4.
The proposal is the outcome of a series of meetings and
detailed consideration by the Ownership Working Group
(“The Group”) over the past 7 months.
The Ownership Working Group sought legal advice from
Buddle Findlay and commercial advice from Craigs
Investment Partners on aspects of the proposal.
Outline
The consultation document describes the key concepts
developed by the Group. The Group’s proposal is then set
out. The consultation document finishes with the steps
required to implement the proposal.
Key concepts
The Group placed the “New Zealand kiwifruit grower” at the
centre of its considerations and identified the following key
concepts.
GROWER
Identify the grower
Encourage ownership
Encourage active participation
Principal person with “skin in the
game”
Grower owns and controls Zespri, and
benefits from Zespri’s success
Encourage landowners to participate
in industry through Zespri ownership
Principal investor in orcharding
activities
Shareholding by growers is
encouraged but not mandatory
Is either:
Limit total shareholding under a KPIN
to up to 2 shares per tray equivalent
supplied to Zespri
When ownership of an orchard
changes hands, the new owner should
benefit from the orchard’s production
history when calculating the share cap
(i) a landowner; or
(ii) a
lessee who has leased an
orchard for 3 or more years or has
a lease of an orchard with a term
of 3 or more years (“medium-term
lessee”)
Maintain production-based voting cap
at 1 vote per tray equivalent
Facilitate landowner ownership of
Zespri through:
•Financial assistance
•An effective market trading platform
•Targeted buyback of shares
Landowner priority unless landowner
and lessee agree otherwise
The Group considered whether to recommend that Zespri
become a co-operative company. It decided against doing
so. A co-operative model would involve growers buying and
selling shares directly from Zespri at a fixed price. That
would cause financial risk for Zespri and importantly not
enable growers to get best market value for their shares.
Proposal
A grower may hold no more than 2 shares for each class 1
tray equivalent (“tray”) of kiwifruit produced under a KPIN
and supplied to Zespri at FOBS. The grower must be the
landowner or medium-term lessee of that KPIN. This is the
production-based shareholding cap.
The voting cap will be amended so it is applied at ratio
of one vote per tray. The shareholding cap and the voting
cap will use same mechanism for calculating a grower’s
production.
Both a landowner and medium-term lessee of a KPIN
may hold shares relating to production supplied to Zespri
from the KPIN but if their combined shareholding exceeds
the production-based shareholding cap, the mediumterm lessee must dispose of shares before a landowner
is required to do so (“the landowner priority rule”). A
landowner has the right to hold shares in priority to a
medium-term lessee of the landowner’s KPIN.
A landowner and medium-term lessee may privately agree
to adopt a shareholding arrangement that is different from
the landowner priority rule. For example, a landowner may
choose not to hold any shares or agree not to exercise his
or her rights under the landowner priority rule. The overall
2:1 shareholding cap will still apply.
Shares held in excess of the production-based
shareholding cap must be disposed of:
(a) in the case of shares more than 3 times in excess
of the cap (i.e. a share to tray ratio of >3:1), within 1
year; or
(b) in the case of all other shares, within 3 years.
Exception to proposal for existing long-term lessees
The Group acknowledges that there are some lessees
who are currently shareholders whose commitment to
the industry spans a considerable period of time. The
Group proposes an exception to the production-based
shareholding cap for lessees who, when the cap is first
calculated after implementation of the proposal, are party
to an existing lease of at least 20 years’ duration (“existing
long-term lessees”).
The Group proposes that existing long-term lessees and
landowners be treated equally but as independent parties.
The production-based shareholding cap is therefore divided
equally between them—that is, one share for each party for
every tray equivalent of kiwifruit supplied at FOBS under a
KPIN belonging to both parties. This preserves the overall
2:1 ratio but the landowner priority rule does not apply.
If either an existing long-term lessee or the corresponding
landowner holds fewer shares than 1 for each tray
equivalent on a KPIN, then the other party could acquire
more shares up to the overall cap for that KPIN. However, if
at any time the total shares held by both exceeds 2:1, then
any shares held by each over the 1:1 ratio would become
excess shares.
Proposal in detail
IDENTIFYING THE GROWER
The grower should be the person who has the most “skin
in the game” and is the principal contributor to kiwifruit
production. Two types of person fit this description:
1. Landowner: The legal person(s) who is the registered
proprietor of the land on which a kiwifruit orchard is sited.
25
2. Medium-term lessee: The legal person(s) who either:
(a) h
as a lease of a kiwifruit orchard with a term of at
least 3 years; or
(b) h
as leased a kiwifruit orchard for 3 consecutive
kiwifruit seasons.
Either of these persons is a “grower” for the purposes of
the shareholding cap.
The definition of grower in this consultation document
is different from the definitions of grower in the Kiwifruit
Export Regulations and the Zespri Group Limited
Constitution. These documents define a grower as a
landowner and as a person that holds a lease of at least
one year, described as a long-term lessee.
The Group decided that 3 years was a more appropriate
minimum period to demonstrate a sufficient investment
in kiwifruit production and therefore recommends the
definition of “grower” include the description of mediumterm lessee set out above. Only growers who meet this
definition will be able to buy shares.
ATTRIBUTING PRODUCTION TO A KPIN
All production from a KPIN supplied to Zespri at FOBS
is attributed to that KPIN for the purposes of the
shareholding cap.
There is no requirement that the grower (that is, the
landowner or medium-term lessee of the KPIN) must also
be the person who supplies the kiwifruit produced on that
KPIN to Zespri (i.e. the grower does not have to be the
person who signs Schedule 5 of the Supply Agreement with
Zespri).
CALCULATING THE PRODUCTION-BASED
SHAREHOLDING CAP
The Group decided to adopt the mechanism for calculating
production from a KPIN that is used in Zespri’s current
production-based voting cap. This ensures that variations
in seasonal production are smoothed out by applying the
average of the best two of the five previous seasons.
However, the Group decided that, unlike the current
calculation for determining voting entitlements, the
shareholding cap should take into account an orchard’s
entire five year production history, even if the current owner
or lessee were not the owner or lessee for the entire five
year period.
The shareholding cap for each KPIN is calculated by:
(a) determining the average of the two highest numbers of
tray equivalents of the previous five years’ production
supplied to Zespri at FOBS for each KPIN; and
(b) multiplying
the number calculated in step (a) by 2.
This calculation means there will be a maximum number
shares able to be held for any KPIN at any time. This
number will fluctuate over time, depending on production.
26
If a shareholder holds shares in excess of the productionbased shareholding cap, then the excess shares must be
disposed of within 3 years (see further below).
THE LANDOWNER PRIORITY RULE
Where both the landowner and a medium-term lessee of
a KPIN are shareholders, the total number of shares held
by both landowner and medium-term lessee for that KPIN
must not exceed the production-based shareholding cap
(i.e. 2 shares for each tray equivalent supplied at FOBS).
If the total number held exceeds the production-based
shareholding cap, then the number of shares held must be
reduced so that there are no excess shares.
The Group considered whether it is the landowner
or medium-term lessee who must first reduce their
shareholding so that the combined shareholding remains
under the cap. It was decided that the landowner should
have priority over the medium-term lessee, so the lessee
must reduce his or her shareholding first.
The landowner priority rule operates KPIN by KPIN as
follows:
(a) If the total shareholding of the landowner and
medium-term lessee of an orchard is less than twice
the number of trays supplied to Zespri at FOBS for
that orchard, then (unless agreed otherwise) the
landowner has priority to acquire shares to meet
the shortfall between total shares held and the
maximum shareholding entitlement.
(b) If the total shareholding of the landowner and
medium-term lessee of an orchard is greater than
twice the number of trays supplied to Zespri at FOBS
for that orchard, then (unless agreed otherwise)
the lessee is in excess of the production-based
shareholding cap and must dispose of his or her
excess shares.
Example 1 illustrates the operation of the landowner
priority rule where there is a simple one landowner, one
medium-term lessee relationship. Example 2 (in Appendix
3) illustrates how the rule works where there is one
medium-term lessee leasing from multiple landowners.
It is also possible for a landowner to own two or more
KPINs, with different medium-term lessees at each KPIN.
In this situation, the landowner’s shares must be divided
among those KPINs in order to calculate whether there is
any shortfall at each KPIN that could be allocated to a longterm lessee of the KPIN. The Group decided that owner’s
shares should be allocated between KPINs in proportion
to production from each KPIN. Example 3 (in Appendix 2)
illustrates how the rule works where there is a multiplelandowner/multiple-lessee situation.
The landowner priority rule is a “default rule”. Landowners
and medium-term lessees may decide to agree to different
priority arrangements among themselves. For example, a
landowner could agree not to hold any shares at all.
Such arrangements are entirely private as they are
between the parties. Zespri will not be a party to them
and, if a dispute arises between a landowner and mediumterm lessee in relation to an arrangement, Zespri will not
participate in any dispute resolution processes or become
involved in any other way. The share cap rule will operate
in the usual way, and simply take into account that a
landowner may have few or no shares.
DETERMINING THE MEASUREMENT DATE
It is necessary to set a date on which the productionbased shareholding cap is calculated. The Group decided
on 31 March as the best measurement date. Zespri will
measure the number of tray equivalents supplied to Zespri
at FOBS for each KPIN as at 31 March each year. That
measurement will be used to calculate the shareholding
cap to find the average of the best two from the previous
5 years’ production history by KPIN for persons who
are shareholders on 31 March. Zespri will then notify
each shareholder of his or her maximum shareholding
entitlement as soon as practicable thereafter.
A shareholder may buy or sell shares at any time.
However, changes between Measurement Dates will not be
considered for the purpose of calculating the shareholding
cap. Only the number of shares held on a Measurement
Date is relevant.
DEALING WITH EXCESS SHARES
When Zespri notifies shareholders of their shareholding
entitlements after each measurement date, some
shareholders will find themselves holding more shares
than the production-based shareholding cap allows. A
shareholder with “excess shares” has 3 years from the
relevant measurement date to bring his or her shareholding
under the cap. If the shareholder is a landowner, this could
happen in two ways:
(a) the shareholder increases production, in which case
the shareholding entitlement increases; or
(b) the shareholder sells his or her excess shares.
If the shareholder is a medium-term lessee, both of the
above apply, but the lessee’s entitlement is also affected
by the acquisition or disposal of shares by any landowner
shareholders.
If a shareholder brings his or her shareholding under the
cap before the end of the 3 year period, the shareholder
will have met his or her obligation. A fresh 3 year period
will apply if that shareholder subsequently exceeds the
shareholding cap.
If a shareholder has not brought his or her shareholding
under the cap within 3 years, the shareholder will be
required to dispose of the lower of:
(a) the number of excess shares held at the beginning
of the 3 year period; or
(b) the number of excess shares after the 3 years has
elapsed.
If a person holds shares in excess of the 3:1 ratio (“3:1
shares”), then those shares must be disposed of within
1 year so that the shareholding no longer exceeds the
3:1 ratio. The standard 3 year period applies to the other
excess shares. The purpose of this rule is to prevent
shareholders holding large quantities of excess shares for
a 3 year period.
The requirement to dispose of 3:1 shares within one
year will not apply to shares held when the cap is
first calculated after implementation of the proposal.
Shareholders will have 3 years to dispose of those
shares. This is to allow sufficient time for shareholders
to realign their shareholding under the new productionbased shareholding cap. If such shareholders increase
the number of excess shares above the number they hold
when the cap is implemented, the 3:1 shares rule will
apply to those excess shares.
ENFORCEMENT
Excess shares that the shareholder has not sold within
3 years (or, in the case of 3:1 shares, within 1 year) from
the relevant Measurement Date become breach shares.
The shareholder must immediately dispose of breach
shares and automatically becomes ineligible to receive
dividends on breach shares. The Zespri Board may also, at
its discretion, step in and sell breach shares on behalf of
the shareholder.
Changes to the voting cap
The existing production-based voting cap rules set out in
clause 20A of the Zespri constitution will be amended
so that they are consistent with the production-based
shareholding cap. The underlying principle will be the
same for both shareholding and voting, except that the
production-based voting cap will permit a maximum of one
vote per tray equivalent supplied at FOBS.
27
There are two main differences between the current and
the proposed production-based voting cap:
(a) m
edium-term lessees will need to have a lease of a
kiwifruit orchard with a term of more than 3 years’
duration or have leased a kiwifruit orchard for 3
consecutive kiwifruit seasons; and
(b) there is no requirement that a shareholder also be
named as a supplier on Schedule 5 of the Supply
Agreement.
A further technical change is that the voting cap will be
expressed on a one-vote-per-tray basis, not a grower’s
proportionate share of total production. There will be an
exception for existing long-term lessees, similar to that
proposed for the shareholding cap, but instead of one-voteeach-per-tray, the ratio will be one-vote-each for every two
trays.
Voting entitlements will be calculated on the same
measurement date as shareholding entitlements. The
entitlements calculated on the measurement date will
apply until the next measurement date.
Encouraging active participation
The Group considered whether, and how, Zespri could
facilitate increased grower participation in Zespri’s
governance and shareholding. To assist landowners to do
so to the fullest possible extent, the Group recommends
that Zespri:
(a) E
nsure there are always sufficient shares on issue
to enable landowners to hold enough shares to fully
utilise their voting entitlements, taking into account
the projected increase in fruit production over the
coming years.
(b) C
ould achieve this by raising capital through share
issues targeted to landowners or, if Zespri did
not wish to raise capital, by a share split. Actively
consider offering financial assistance to landowners
to purchase shares. Zespri could achieve this by
providing financial assistance to purchasers of
shares in accordance with the financial assistance
provisions of the Companies Act, including by making
targeted share offers. A dividend reinvestment plan
should be established as a mechanism for growers
to repay such financial assistance. Zespri could also
consider the option of a targeted share repurchase,
to further encourage alignment.
(c) Advocates for shares to be sold with the land. Zespri
could make a standard-form share transfer clause
available to landowners to include in orchard sale
and purchase agreements.
(d) S
elects a share trading mechanism that is
transparent and easy to operate and does not
restrict information flow between Zespri and growers.
28
SHARE TRADING PLATFORM
Zespri was tasked to consider the share trading platform
it operates with the aim to consider an easier trading
platform for growers and also the ability to increase
liquidity of the shares to improve value and “trade-ability”.
Craigs Investment Partners (CIP) provided some initial
advice suggesting that Zespri consider moving to the
AX Market or proposed Growth Market that is run by the
New Zealand Stock Exchange (NZX). They used Livestock
Improvement Corp (LIC) as an example of a co-operative
company operating on the AX market where CIP is the
market maker and improved liquidity has occurred.
The AX market is expensive to enter and has significant
Continuous Disclosure requirements which could be
difficult for Zespri to comply with. CIP has provided an
introduction to senior staff of the NZX. In addition, Aaron
Jenkins – Head of Markets for NZX- met with Zespri’s Merv
Dallas, Katherine Evans and Tracy McCarthy. This meeting
discussed Zespri’s current position and challenges and
NZX presented Zespri with an overview of the new NZX
Growth Market.
The NZX Growth Market is primarily designed for earlier
stage growth companies, but it was considered that many
of the attributes would be a very good fit for Zespri (such
as Periodic Disclosure and Market Making).
The NZX Growth Market at time of this meeting required
government and Financial Markets Authority (FMA)
approval. NZX advised that should regulatory approval be
given to the growth market, then NZX would be looking to
establish a similar platform for co-operative companies but
this would not be in place until sometime in 2015.
On 14 July 2014, Commerce Minister Craig Foss approved
the amended disclosure regime for the new market. This is
one of the most critical elements, as it removes the burden
of continuous disclosure.
The next stage for the growth market is approval of the
market and the rules by the FMA. NZX expects to provide
an update on that at the end of August 2014. The growth
market, or possibly more ideally the proposed future cooperatives market, could be suitable for Zespri.
There are a number of factors that would need to be
considered, however, before entering such a market. These
include:
•Requirement for growers to transact shares through a
NZX share broker
•Special requirements to ensure the share broker has
processes in place so only a registered kiwifruit producer
can acquire shares
•Understanding the disclosure requirements and any
implications that may arise
•The level of liquidity that may be achieved. There would
be a need to consider the LIC model of appointing a
market maker and considering a dividend re-investment
plan where shares would be purchased utilising the cash
dividend by the market maker
It is unlikely that Zespri is in a position to move to the
growth market in the immediate future (i.e. before the
end of 2014) but this could be considered in 2015.
The Zespri team will review any changes that the FMA may
require on the growth market, will consider the positives
and negatives of this market in detail and also seek
to determine timelines from NZX on the proposed cooperatives market which may be more appropriate
for Zespri.
Implementation
There will need to be changes to both the Kiwifruit Export
Regulations and the Zespri Group Limited constitution to
implement the proposal.
AMENDING THE REGULATIONS
The Regulations currently place restrictions on Zespri’s
corporate form and shareholding requirements. The
definition of “producer” in Regulation 22 requires
amending so that a lessee has a three year, rather than
a one year commitment, consistent with the description
of medium-term lessee in the proposal. Regulation 23
requires amending to permit Zespri to alter shareholders’
rights in accordance with the proposal (e.g. to have a
shareholding cap based on production and suspend
dividends for breach shares).
The proposal cannot be implemented until the Regulations
are amended.
AMENDING ZESPRI’S CONSTITUTION
There will need to be a number of changes to the Zespri
constitution. Some of these will involve new or amended
definitions, including “grower”, “landowner”, “medium-term
lessee”, “existing long-term lessee”, “production”, “excess
share”, “breach share”, and “measurement date”.
A new clause or clauses will be needed to:
(a) d
escribe the production-based shareholding cap and
the landowner priority rule;
(b) e
stablish a measurement date;
(c) introduce enforcement measures for dealing with
breach shares; and
(d) p
rovide for transitional measures, including the
exceptions for existing long-term lessees.
Clause 20A, which describes the current voting cap, will
also need amending.
Zespri’s shareholders must approve these changes in
accordance with their voting rights under the current
constitution and the Companies Act.
Please find further examples on the mechanics of the
proposal in Appendix 3.
29
MARKETING WORKING GROUP REPORT
Introduction
Submissions on 12-Month Supply
The main focus of comments was two-fold: 12-month
supply must not detract from Zespri’s core role of
maximising returns to New Zealand growers; and how
returns from 12-month supply should flow back to the NZ
grower.
KISP FRAMEWORK
MARKETING
5. Z
espri’s purpose is to be the “best in class”
organisation in order to ensure a sustainable New
kiwifruit grower returns.
6. Z
espri-branded kiwifruit is the best available kiwifruit
around the world 12 months of the year for the overall
benefit of New Zealand kiwifruit growers. **
7. T he New Zealand kiwifruit industry must have a
process to evaluate and implement genuine, innovative
marketing, that are aligned to Zespri’s global marketing
strategy and for the long-term benefit of New Zealand
kiwifruit growers.
**The Group will consider the implications of the industry
strategy to non-New Zealand supply businesses and
consider how the risks and rewards from the activity are
captured by Zespri and how the profits are used.
Submissions on Best in Class
The main theme to come through in the comments was
Zespri must focus first on being the best marketer and
focus on maximising returns to New Zealand growers
(many made the comment New Zealand growers were
not specified in the principle and need to be). Among the
comments made were:
•“Zespri’s goal must be to maximise returns for each
variety [cultivars] to the growers for the fruit supplied.
Each variety [cultivar] should stand or fall on its own
merits without cross subsidisation”
•“Must be at the core of everything it does”
•“Must include transparency”
•“Must maximise returns for NZ growers”
•“Zespri needs to lift performance”
•“The China issue has damaged Zespri and it being bestin-class”
•“Zespri should continue to be the largest kiwifruit
company in the world and grow an even greater
presence”
30
Comments included:
•“Zespri must include the organic category in its 12
month supply”
•“Needs to be constrained to 12-month supply only rather
than sourcing volumes inside the NZ selling season”
•“It, via NVs [New Varieties], also can be a very big
dividend earner for its shareholders”
•“The strength of the Zespri brand is New Zealand, by
having overseas fruit in the mix this could have the
potential to significantly reduce the value of the brand
and the value of New Zealand fruit”
•“Year round supply is critical for genuine global fruit
brands - unique NZ grown point of difference should be
maintained however”
•“Agree as long as quality and standards and food safety
do not compromise brand or reputation”
•“Provided profits go back to supplier shareholders”.
There were a few who were concerned that 12-month
supply was detrimental to the industry: “not convinced
that 12-month supply is in growers interest as opposed
to the corporates - alignment issues”, “don’t give away
competitive advantage”, and “is overseas fruit up to our
standard”, were some of the comments.
A number of submitters asked that the words “to increase
New Zealand grower returns” be added to the end of the
principle.
Submissions on Collaborative
Marketing
In the original consultation, collaborative marketing was
not raised by KISP. However, there was general comment
made in a submission requesting the issues phase of KISP
explore different ways of collaborative marketing, and for
an analysis of collaborative marketing to be undertaken.
The importance of collaborative marketing, both in terms
of ensuring the continuation of the SPE and providing
an opportunity for new and innovative options, was also
raised.
OUTLINE
The document considers the principles in order from
Principle 5: Best in Class, through to Principle 6: 12-month
supply, and Principle 7: Collaborative marketing.
BEST IN CLASS
As part of its discussion, the Group asked Zespri to
provide a deeper understanding of its marketing strategy,
long-term planning process and how it measured the
effectiveness of that strategy. What follows here is a
summary of that report. The Marketing Working Group
considered how Zespri’s measures and marketing strategy
could be integrated with the Industry Governance Working
Group’s proposed Grower Council and its role of monitoring
and reporting back to growers on Zespri’s performance.
What is “Best in Class” branded
sales and marketing?
Zespri’s high level strategy is to develop and market the
leading range of premium kiwifruit products globally and to
develop deep relationships with the trade and strong-brand
preference and purchase intent with consumers – this
through meaningful interaction through brand and products.
Being “Best in Class” means for Zespri:
•Maintaining Zespri as the recognised and preferred
leading kiwifruit brand
•Supporting premium position/ pricing through trade and
consumer preference (loyalty)
•Trade preference is supported by:
- T he ability to provide a full programme across the
kiwifruit category
-Q
uality and pricing reliability leading to Zespri kiwifruit
category trade profitability reliability
-A
track record of growth and a future plan for growth
-A
partnership approach to growing the category,
including a real and recognised investment in our
products through promotion
-H
igh service level
- Integrity around our sustainability story, confidence in
our food safety standards
•Consumer preference is supported by:
-R
ecognisable and consistent quality through the Zespri
Brand
-G
reat tasting products that are ready to eat or easy to
ripen
-B
rand attributes: “pure vitality from within”. Zespri is
delicious and is really good for me
-A
belief and understanding of the health benefits that
kiwifruit delivers, with the quality and taste trusted in
the Zespri brand
-A
vailability for purchase, with a range of products –
sizes, flavours, organics etc
-C
onvenient to eat, convenient to store at home
-N
Z origin provides reassurance of a safe and genuine
quality product
- Integrity around our sustainability story
How does Zespri implement “Best
in Class” marketing and sales
programmes?
Our historical success has come from developing strong
distribution and a market share in key markets and then
extending our consumer penetration through point of sale,
sampling, PR, social media, and above-the-line marketing
activity over successive seasons.
Zespri follows the following processes
1. 5 Year Plan:
•Considers market environment, competitive factors,
new product availability, market development strategies,
global supply requirements
•Optimisation of demand estimates and supply estimates
for maximisation of grower returns and business
sustainability
2. Annual Marketing Plan
•Considers the advertising and promotion plan for trade
marketing and consumer marketing
•Is aligned with the 5 year plan, taking into consideration
new information available on product supply, market
demand, competitive situation etc
Customer and Distribution Strategy
•Considers changes in the distribution structure required
for market development and segmentation strategies
Execution of the Marketing Plan
•Marketing and promotion agencies selected
•Marketing campaign creative developed
•Media mix selection
•Marketing communications (earned, eg PR, social media;
bought, eg TV, print; owned eg website, micro-sites)
•Promotions and merchandising
•Sales support
•Pricing
•Channel management
Measuring performance
•Sales volume, value and pricing
•Market share
•Consumer marketing dashboard measures:
•Kiwifruit category penetration
•Brand awareness
•Brand engagement
•Campaign effectiveness reviews
What Measures can we use to show
the Result?
•Sales volume, value and pricing
•Zespri Market Share – available at a high level when
import / production statistics are available
•Kiwifruit Category Market Penetration
•Kiwifruit Eaters as a percentage of Fruit Eaters
•Proportion of Heavy Kiwifruit Consumers by Market
•Zespri Kilograms purchased per Person
•Zespri Brand Position
31
Summary
The marketing metrics help build our understanding of
the level of development of the kiwifruit category and the
Zespri brand, and provide a view of the effectiveness of the
sales and marketing campaigns. At an individual market
level, further consumer research is collected each year to
explore other views of the reach and effectiveness of the
campaigns, against the objectives and strategy.
What is 12-month Supply?
12-month supply refers to the procurement and marketing
of Northern Hemisphere or early Southern Hemisphere
kiwifruit (when New Zealand fruit is not available in market)
to complement the sale of New Zealand kiwifruit.
Fundamental to the success of Zespri’s sales and
marketing campaigns is the approach to develop clear
global strategies and objectives, and then to interpret
these locally in each market depending on the state of
category development, brand strength and local cultural
fruit habits. Each market has distinct and different
challenges and therefore global amalgamation of the
marketing results need always to be taken in context
of the following: changing fruit supply and competitive
environment; product allocations for global OGR
optimisation; local media costs and social media trends;
and consumer insight around the category and brand.
12-month supply is an important part of Zespri’s business
strategy and a key source of Zespri’s competitive
advantage. Specifically, it strengthens Zespri’s New
Zealand kiwifruit business by continually building the Zespri
brand and strengthening global relationships.
Zespri’s objective is to be the “best in class” internationalbranded kiwifruit sales and marketing organisation to
ensure a sustainable New Zealand kiwifruit industry
that maximises New Zealand kiwifruit grower returns.
Furthermore, on a market-by-market basis, the sales and
marketing programmes are developed, implemented and
monitored to continually improve against this goal.
The benefits of Zespri offering 12-month supply in a market
are:
1. To partner with our distributors in kiwifruit 12 months
of the year and demonstrate consistent quality and
standards, irrespective of origin, to support their
strategic objectives and add value to their businesses.
2. To maintain shelf space 12 months of the year
– ideally to be the kiwifruit category manager, by
offering confirmed volumes and quality for the full
year, as opposed to seasonal competitors from other
countries who cannot provide such reliability. This
allows significantly more flexibility for volumes of New
Zealand kiwifruit to be placed in the best position to
maximise returns.
3. To maintain brand presence 12 months of the year so
that when New Zealand kiwifruit comes into markets,
it is not fighting for shelf space with earlier seasonal
produce or seeking to displace other produce that is
available 12 months of the year.
4. To grow our proprietary products over 12 months
rather than just in the NZ supply window. This is
critical from a category growth perspective, for eg,
apples, tomatoes, and bananas are all available 12
months of the year.
5. In growing regions, having a local presence enables
Zespri to better manage the pressures placed on
distributors and retailers to support local product. By
supporting the domestic kiwifruit community, which
in most cases is not competitive to Zespri’s New
Zealand supply windows, this further enables Zespri
to maintain the quality standards for the category as a
whole in that market.
The following factors are fundamental to implementing this
strategy:
•Industry integration (NZ kiwifruit regulations)
•Zespri Brand
•Integrated quality system (grade standards, taste
programme, crop protection programme, payment
system, quality accountability, ready to eat initiatives)
•12-month supply
•New Product Development Programme
•Innovation Programme (consumer research, supply chain,
market access, orchard productivity, new varieties)
12 MONTH SUPPLY
The Group agreed that 12 Month Supply was critical to
growing the wealth of New Zealand kiwifruit growers by:
•continually building the Zespri brand
•strengthening global relationships
•growing the kiwifruit category as a whole
Secondly, the Group agreed that with the future projections
in Zespri income - ie Zespri Global Supply being significant it was critical that growers understood how this intersected
with the issues being considered by the Zespri Ownership
and Zespri Funding Working Groups.
The Working Group asked Zespri’s General Manager of Global
Supply Blair Hamill to provide a report on Zespri’s Global
32
Supply strategy, future growth predictions and risks from the
programme. A summary of that report is included here.
The Zespri Global Supply (ZGS) strategy has the
fundamental aim of achieving increased overall wealth of
New Zealand kiwifruit suppliers and growing the kiwifruit
category as a whole. The underlying basis for sourcing
kiwifruit outside New Zealand is to support the New
Zealand growers and core business.
In addition there are other benefits to the New Zealand
grower as well outside the market benefits, such as:
1. Growing in both the Southern and Northern
Hemisphere locations allows the New Zealand industry
to learn and innovate at twice the pace. This benefit
was very evident during the height of Psa where time
was against the industry and the learnings needed to
be adopted as quickly as possible.
2. ZGS is a “stand alone” business unit that is allocated
a portion of overhead costs from other business units,
thus allowing for better utilisation of our corporate
overhead spend.
3. Having activity across 12 months of the year creates
a platform to retain core staff; seasonal roles can
create staff turnover and an associated loss of staff
experience within the organisation.
Growth
To achieve genuine 12-month supply in our major markets,
and thereby satisfy the strategic objectives of 12 month
supply, will require volume growth during the Northern
hemisphere season i.e. in the non-NZ season.
To achieve volume growth ZGS is focused on:
1. A Gold recovery pathway in Europe with G3 replacing
Hort16A which is now almost completely eradicated in
Italy and France due to Psa
2. Trialling other locations with G3
3. Increasing our Green sourcing programs out of Italy &
France to meet growing market demand in both Europe
and Asia
We have strong market demand in the Non NZ season
and are therefore forecasting strong growth within our 5
year plans, potentially volumes of 34m TE and revenue
NZD +$400m. Our success in this planning window will be
determined by:
1. How successful G3 is in Italy and France in recovering
Gold volumes in these important production locations
2. Continuing to drive the Green business by growing
demand and securing supply through competitive
grower returns
ZGS Profit Contribution
The 12 month business has been profitable, returning to
Zespri shareholders between NZD$4.6m - $9.9m, over the
last 5 years. This contribution is repatriated back to New
Zealand and is included as part of the corporate financial
result.
The Gold business operates largely exactly the way the
NZ Gold business does i.e. Zespri licences growers to
grow PVR varieties and receives a commission from the
sale of the fruit, then deducts direct costs from the Pool
(transport, promotion, duty etc.) and then distributes a
market return by size to growers.
For Zespri’s Green procurement programme we have 2
separate procurement models:
1. A committed supply model – a dedicated supply
programme to Zespri for an agreed fixed margin and
market return
2. A “buy/sell” model – a programme where we are
negotiating spot price with Zespri suppliers for supply
and selling the fruit at a variable Zespri margin.
China
China presents both an enormous opportunity and
challenge as a potential Northern Hemisphere production
location. On the one hand, we have a rapidly growing
market and the world’s largest producer of kiwifruit, and on
the other hand, very challenging environmental conditions
and a supply chain that needs modernising. We observe
the China market modernising more quickly than the
production and supply chain functions, but believe these
will modernise over time to take advantage of the exciting
market opportunity China presents.
Zespri has been studying China production for a number of
years and will continue to take a very cautious approach to
managing the significant risks that are “embedded” within
any China production strategy. We are, however, making
progress in studying a potential sourcing plan by:
1. Developing a very deep and thorough understanding of
the kiwifruit industry in China and where it is heading.
2. Then, within the context of that understanding,
determining the best option for participation.
Risks
There is a level of inherent risk associated with fruit
supply, irrespective of production location, and any risk
increases as the business grows. In saying that it is also
acknowledged that supply from certain countries will
attract more risk than supply from other countries e.g.
supply from China will be a riskier proposition than supply
from New Zealand.
Our approach to 12-month supply is to implement the
Zespri system as much as practically possible.
Examples of this approach are evident in the fact that
Zespri:
1. Operates under one global quality standard – this is
essential when we are using one global Zespri brand
2. Operate’s centralised functions for many activities, for
example:(a) Packaging
(b) Branding
(c) Compliance (legal, tax, crop protection, residue
testing, traceability)
(d) Sales and marketing
This approach allows consistency in applying of the Zespri
system and ensures we have an appropriate level of
expertise managing core functions.
The risks below are specific to the 12-month supply activity
33
in order to assess the overall risks versus the commercial
outcome. These are not all inclusive and are not intended
to cover wider risks of the general business such as terms
of trade, accidents and catastrophes etc. These are all
managed under the wider context of the risk matrix that
Zespri manages. Some key 12-Month Supply risks are:
•Consistent application of global quality standards/
processes:
-R
esidues, crop protection programmes, traceability etc.
-E
nsuring 12-month supply delivers premium high taste
fruit to our consumers
- Potential damage to the Brand
•Technology transfer
- Insufficient technology transfer knowledge within
the growing region. We have increased our level of
knowledge in this area significantly over the past few
years with the secondment of key NZ personnel
-N
ew Zealand technology advantages transferred to
competitors
•Resource and skills available
-S
ufficient skilled resources in growing areas to support
delivery of Zespri quality fruit
- Sufficient monitoring and checks in place
•Post-Harvest/grower dissatisfaction
-W
ill largely be driven by dissatisfaction of financial
returns
-P
erceived poor performance by Zespri in the market
•Adequacy of Supply
-D
iseases/pests especially where these are different
from those affecting NZ fruit
-S
pecific growing challenges in specific areas
- Post-Harvest capacity constraints
•Surety of supply of Green fruit
-V
arieties like Hayward are competitive “free” varieties
offshore and can be grown and supplied to market
in any brand. There is an implied risk from this from
season to season in regards to securing supply to
meet demand.
Conclusion
As other kiwifruit brands begin to build momentum and
aim for 12-month supply, Zespri needs to maintain a
continuous supply strategy and build brand awareness or
risk losing future market share to emerging brands.
With the plethora of new varieties and cultivars grown
globally by competitors, it is imperative Zespri retains a
strong presence in the market place 12 months of the year
to position NZ kiwifruit strongly and retain strong customer
and distribution relationships.
Zespri’s 12-month supply enhances consumer loyalty
and strengthens the position of our key distribution
partners, when increasingly competitive alternatives are
emerging. Therefore as Zespri Northern Hemisphere supply
volumes grow, the benefit to New Zealand growers is also
increasing.
34
COLLABORATIVE MARKETING
What distinguishes the Kiwifruit Regulations from other
New Zealand export regulatory frameworks such as dairy
and apples is the requirement for collaboration with Zespri
and the need to add value to the New Zealand kiwifruit
industry. It is important to understand that collaborative
marketing is not a mechanism to bypass the SPE but an
opportunity to enhance the overall industry performance by
working with Zespri in a collaborative manner.
The Marketing Issues Group conducted a review into
collaborative marketing to examine the objectives,
characteristics, strengths and weaknesses of the current
mechanism. The historical outcomes from collaborative
marketing programmes and possible improvements were
considered, as were alternate models used by other
industries. That research and international marketing
experiences formed the basis of the following conclusions
and recommendations for collaborative marketing.
In summary collaborative marketing, as it presently
operates, has generated a high level of frustration from
past and present collaborative marketers. Approvals
for value-enhancing opportunities under collaborative
marketing have, to date, resulted in only a small volume
of fruit marketed under the scheme. As a consequence,
collaborative marketing initiatives have not contributed
significant value to the kiwifruit industry.
Nevertheless, the scheme has the potential to be a
meaningful catalyst for wealth-creation through future
market developments and value chain innovations to
complement the activities of Zespri.
The fundamental recommendation is that vibrant
collaborative marketing is a key pillar of the industry’s
regulatory framework and the returns to be achieved by
growers over time. A more effective collaborative marketing
system can potentially contribute increased value in
terms of specified market developments and value chain
innovations to complement the activities being undertaken
by Zespri. A change in attitudes and culture of all parties
involved will be required to realise this potential.
Other key recommendations focused on the following:
•The original regulatory objectives for collaborative
marketing are still valid
•No changes in legislation are required for the proposals
•A higher level of commitment to collaborate is required
from all participants in collaborative marketing
•There should be a long term value, rather than a volume
objective for collaborative marketing
•Zespri should identify and signal collaborative marketing
opportunities as part of its global strategic marketing
plan
•The terms and conditions, including multi-year terms
of approval, and structure should be more commercial
including formulated exit provisions in appropriate cases.
These exit provisions should ensure that the successful
efforts of third parties can be recognised
•Fruit returns to be paid to an appropriate pool subject to
case-by-case discretion in relation to the type of fruit and
the risk profile
The development of a vibrant collaborative marketing
function with an emphasis on creativity and innovative
proposals aligned to Zespri’s global strategy and the
dynamics of global fruit markets will require further thinking
by the KISP process. In line with this, the Marketing Issues
Group continues to develop the project’s collaborative
marketing proposals and will work with all interested
parties and invites submissions and suggestions to assist
with this development.
35
SUPPLY CHAIN EFFECTIVENESS WORKING GROUP
REPORT
Introduction
• “Coolstores are not competitive, they act like a cartel”.
As a counter-balance, some submitters made the comment
that post-harvest needs to be kept “on-shore” to ensure
the SPE retains its strength.
KISP FRAMEWORK
8. The New Zealand kiwifruit industry must have an
efficient, competitive and responsive onshore postharvest sector that is aligned with the industry
strategy, offering grower choice that is integrated into
an efficient global supply chain.
9. The New Zealand kiwifruit industry must have a worldclass global supply chain from orchard to consumer.
10. Z
espri’s payment system for New Zealand-grown
kiwifruit must reflect commercial signals based on inmarket returns.
Submissions referring to the need
for an efficient, competitive, and
responsive post-harvest sector
The comments focused mainly on:
•The need for an efficient supply chain to have the
overview of the entire New Zealand kiwifruit industry
•Concerns raised over lack of transparency around postharvest performance
•A smaller number of comments focused on the need for
post-harvest to be involved in the supply chain beyond
FOBs
Concerns on post-harvest influence in the industry
included:
•“Post-harvest must not think they speak for growers or
think that they are more important than growers as can
be the case now”
• “We need clearer data on comparison of entities - too
few large entities could lead to the tail wagging the dog,”
•“More transparency required”
• “Latter part of global supply chain needs to remain
with Zespri and not be hijacked by larger post-harvest
operators”
• “Post-harvest needs serious auditing and more
transparency like Zespri”
• “Fear that increasing post-harvest influence will lead to
short-term thinking”
• “Postharvest must commit to the SPE”
• “Feels there should be provision to make submissions
on cool-storage charges and competition in the coolstorage industry”
36
On the need for greater post-harvest involvement in the
supply chain, comments included:
•“Standards should be set and enforced and the market
will do the rest”
•“Packhouses should have the ability to take fruit to the
market and get the benefits for their quality work”
•“Why can’t fruit be exported in black bins to be packed
in market?”
•“If post-harvest can competitively improve aspects of the
supply chain then they should be allowed to but without
compromising Zespri or the SPE or brand reputation”
•“Suppliers should be able to deliver anywhere along the
supply chain”
•“As experience of post-harvest grows they should be
allowed to use their abilities beyond FOBs”
•“The further up the supply chain growers can have a
choice the more efficient the supply chain will become.
The capitalist model still works”.
Submissions referring to a world
class global supply chain
The main comment was the need for an efficient supply
chain to have the overview of the entire New Zealand
kiwifruit industry (ie the principle should read “The New
Zealand kiwifruit industry is charged with….”)
The second key point to be made by submitters was
that the supply chain must also be cost-effective, with
many asking that those words also be added to the final
principle. There were also comments made that there
needed to be greater transparency in accounting for offshore fruit loss.
Of those who disagreed with the principle, their focus was
on the role of Zespri in the supply chain and the need for
post-harvest to be involved in the supply chain beyond
FOBs, as per comments on Principle 8.
One submitter believed KNZ should have the role of
overseeing the development of the supply chain, while
others felt Zespri should only focus on marketing and leave
supply chain development to post-harvest operators.
Submissions referring to the
payment system
Most comments reflected on the need to make the
payment system more transparent and easier to
understand for growers. This sentiment is best summed up
by the following comments:
•“Agree, provided the system is simple, easy-tounderstand, transparent and there is no crosssubsidisation”
• “Greater transparency needed between what Zespri
pays and what growers receive - particularly applies to
time and cost incentives”
• “Current financial systems are cumbersome and most
struggle to understand”
• “Concerned pooled funds are not transparent and that
the variety OGRs are manipulated to achieve desired
results.”
There were a small number who believed that the current
payment system did not reflect true commercial signals.
There were also a small number who believed supplier
entities should drive the financial management from the
point of supply.
Working Group’s approach
This consultation document sets out the proposals of the
Supply Chain Effectiveness Working Group, formed as part
of the Kiwifruit Industry Strategy Project and tasked with
considering how best to give effect to Principles 8, 9 and
11: Supply Chain Effectiveness.
The Supply Chain Effectiveness Working Group (“The
Group”) was also asked during the process to consider the
effectiveness of the “Supply Contract”, a bulky and time
consuming document governing the supply of kiwifruit from
“Suppliers” (on behalf of Growers) to Zespri. The proposal
is the outcome of many meetings, consultation and
detailed consideration by the Group.
Outline
Because it is fundamental to other deliberations of the
supply chain, Principle 8: - An efficient, competitive and
responsive onshore post-harvest sector offering grower
choice, integrated into a world-class global supply chain has been considered first.
The paper then addresses Principles 11 and 9. Finally, the
high level principles of the Supply Contract are considered.
Principle 8
An efficient, competitive and responsive onshore postharvest sector that is aligned with industry strategy, offering
grower choice that is integrated into a world-class global
supply chain.
The Group is strongly of the view that this competitive
model is the most effective way to deliver kiwifruit from
orchard to ship (FOBs), and heard very little contrary
opinion, although that dissent was potentially significant.
The alternative to the competitive model was seen to be
a single channel of packing and storing kiwifruit on-shore
integrated with Zespri.
The Group is of this view for a number of reasons
including:
Kiwifruit is not homogeneous, unlike milk, and perishable
so requires considerable manual labour input and
judgement to effectively grade and optimise the delivery
(maximise volume packed out, shipped and sold within
market specifications). A competitive model is better able
to drive performance and innovation in this environment.
Different maturity times and weather vulnerability require
flexibility and speed of decision making to optimise
outcomes.
Economies of scale are limited with present technology,
which has changed little in 20 years. If there were significant
economies of scale, large operators would be more cost
effective driving smaller ones out of business. Significant
technology change in the future, given this competitive
model, would of itself naturally cause change in scale
and how the post-harvest sector is structured and is not
something we can predict at this time.
Some believe there can be, at some point, diseconomies
of scale including: labour management, packing line
size being two dimensional (width and length) for a one
dimension volume increase, inventory management, and
grower service.
Several competing operators drive innovation to provide a
better quality service to growers and spreads risk.
Perhaps most importantly, the competitive post-harvest
model allows the grower choice in an industry that does not
allow choice in the sales and marketing of his/her crop.
How effectively a post-harvest operator handles his/her crop
is critical to a grower’s financial success. This competition
from grower choice motivates the best performance in a
post-harvest process that is as much art as science. To
not give that choice to growers is likely to cause frustration
and reduce their financial return from the percentage of
their crop shipped and sold. Potentially, it will also make
many growers feel opposed to this extended single channel
from orchard to market, including the SPE. Competitive
post-harvest is important in the process of holding Zespri
accountable and creating commercial tension.
The major concerns of the current model are:
(a) That with the present model not being fully integrated
37
with Zespri - the sales and marketing organisation,
and competitive drivers are not always in the same
direction as Zespri - it does not optimise opportunity
and efficiency in the supply chain.
The Group agrees that value can be lost in this way from
the current structure but that some of this could be
avoided by more flexible supply terms. The group has not
been convinced that this loss exceeds the loss that could
occur from a non-competitive model.
Appendix 5 sets out the potential areas of loss from the
present model, along with the Group’s assessment of that
loss as to its significance and ability to avoid.
(b) There is a pattern of larger post-harvest operators buying
smaller to medium operators in the industry, resulting
in fewer operators over time. If this consolidation were
to continue there is a risk of only a few operators
dominating the industry, reducing competition and
potentially destabilising Zespri and the SPE.
The Group observes that while smaller operations
have closed, most probably due to lack of economics,
medium operations have generally remained viable but
have sometimes sold to larger operators generally as a
means of exiting capital for owner operators as they leave
the industry. In some cases sale or mergers may have
occurred due to lack of performance, which is a natural
process in a competitive model.
This pattern is not unusual and is seen in other developing
and then maturing industries, with fewer owner-operators
remaining. Instead there are larger operations with more
stable and sustainable capital (corporate or cooperative)
and management structures.
While this may prevail in the kiwifruit industry, the
Group believes there are a number of counter forces
which combined could be significant and may cap such
consolidation. These are:
(a) L imited economies of scale in post-harvest at this time
(this could change in the future)
(b) L imited barriers to entry (the industry has seen one
significant new entrant via effectively a management
buyout; and a new single line Greenfield’s operation for
greater than 3 million trays is quite feasible if wanted)
(c) L arger commercial growers (200,000 to 1m + trays) are
becoming more common and if necessary they could
sponsor a start-up venture
(d) A
n apparent inability of large post-harvest operations
to retain acquired market share, as acquired growers
drift away to other operators, presumably because
of perceived performance or quality of service (the
competitive model in action)
(e) A
nd ultimately it is in growers’ hands as to whether
they will support an oligopoly or duopoly of post-harvest
developing which may reduce competition and the
38
quality of service they receive.
Ultimately the success of the competitive post-harvest
will, to a large degree, be dependent on it remaining
competitive. The Group is of the view that there are
a number of things that can be done to maintain and
potentially enhance this competition including:
(a) G
reater transparency to growers of post-harvest
performance both on-shore and off-shore
(b) Greater flexibility in contracting between Grower/
Supply Entities and Zespri to enable greater and faster
innovation and reaction to changed circumstances
(c) Greater Grower/Supply Entity awareness of the issues
around supply and grower payments. Education and
communication could assist with this. (see comments
on next page).
Principle 10
Zespri’s payment system for New Zealand-grown fruit will
reflect commercial signals based on in-market returns
The Group strongly supports this principle whereby certain
fruit attributes (size, taste) are rewarded and service
payments allow more flexibility (packtype, time, kiwistart)
rather than one size fits all. To do otherwise would have
significant undesirable consequences on grower behaviour
in regard to fruit characteristics and reduced effectiveness
of supply, for example. There is considerable evidence that
payment for taste has, over time, increased minimum and
average taste levels.
Feedback to the Group suggests a level of frustration
and perhaps poor understanding of some aspects of the
payment system. The system of pooling that most Supply
Entities operate, may add to this apparent complication or
lack of understanding, however there are good reasons for
such pools. Again, we believe that this is best dealt with by
education and transparency rather than dumbing down the
payment system. Supply Entities should ensure they have
sufficient information and understanding to ensure their
growers are well informed on payment issues and terms.
That said, we do believe there may be issues with the
quantum/level of some service payments (eg. kiwistart,
packaging differential, time) but believe this is best dealt
with in the appropriate process of the contract negotiation.
The Group did consider the possibility of removing time
and/or packaging service payments and requiring all
Suppliers to do their share. We are concerned that this
may reduce flexibility and transparency. However, as
discussed under the contracts section, the possibility of
not allocating (or first past the post) but contracting directly
with individual suppliers’ shoulder volumes of kiwistart
and/or time was considered. The Group believes this
warrants consideration.
Also, the Group - while acknowledging the robust basis of
size payments based on actual market returns - is concerned
that this can be affected more by market mix than the
relative in-market size premium. This is especially the case
in smaller pools, for example, Organic Green. We suggest
Zespri consider whether there is a better way of sending size
value signals to growers, perhaps based on relative value to
the pool of incremental volume of each size.
Principle 9
Zespri is charged with ensuring that the industry has a
world-class global supply chain from orchard to market for
kiwifruit in the Zespri Supply Chain
Zespri, as the sales and marketing arm of our industry,
is responsible for defining the product specification and
timing to our customers.
In particular, Zespri must:
Suppliers considerable time to review each year, and is
often finalised late for the pending season. The document
is large and much maligned for its size and detail, having
evolved by evolution and bolt on features over many years.
However, despite these criticisms, the fruit generally is
delivered to Zespri on time and in spec. Huge input from a
dedicated team of Supplier and Zespri staff ensure the job
gets done, although often with more effort than most think
necessary.
Given the inevitable detail in the Supply Contract - partly
caused by the many varieties, sizes, pack types, fruit
characteristics etc that the industry and all suppliers deal
with - the Group never intended addressing the detail of the
contract, but only high level principles. The Group believes
the details must be addressed by those closely involved and
aware of the supply process, as they have been in the past.
QUALITY:
The Group engaged in considerable consultation with
Suppliers, Zespri and NZKGI on the Supply Contract.
•Set quality standards that support the premium brand
position and provide sufficient confidence amongst
customers to be the preferred supplier
•Ensure the supply of correct specification product, and
thereby minimise adverse variability of quality supplied
•Minimise waste
Many parties asked for greater flexibility in the contract,
while a few thought there was too much flexibility,
particularly when it was used to achieve an outcome they
did not want.
LOGISTICS:
•Have the capability to deliver good tasting fruit in
optimum condition to meet customer and consumer
preferences, and the capability to deliver good tasting,
ready to eat fruit to the consumer
•Have the capability to supply customers 12 months of
the year
•Optimise logistics and shipping
•Operate a common quality system setting out grade
standards, the crop protection system, harvest protocols,
packaging specs, and other standards that must be met
for supply of the crop to Zespri.
To do this Zespri needs to be responsible for the supply
chain even if not in direct control of the components of
it, for example, shipping and post-harvest. To fulfil its
responsibility it needs to have appropriate authority with its
service providers and Supply Entities, including adjusting
supply/contact terms in a timely and flexible manner as
circumstances require. This applies to Supply Entities as
if they were third party arm’s length service providers as it
does to shipping or other service providers.
It is critical that Zespri is empowered if it is to provide a
truly world-class global supply chain from orchard to market
for our kiwifruit.
HOW TO IMPROVE THE EFFECTIVENESS OF THE
SUPPLY CONTRACT
The Supply Contract takes many people from Zespri and
The Group is strongly of the opinion, and given our
conclusions in Principle 9, that greater flexibility would
improve effectiveness in the supply chain, just as it does
in other business’s supply chains, but with sufficient
transparency and process governance to protect all
Growers (Supply Entities) and Zespri’s interests. This may
include tender, or a similar process, for some services
or attributes. We believe that since corporatisation in
2000, and the resulting supply contract, the industry has
matured and should be able to operate with a greater
degree of flexibility and trust. However, it is accepted that
the concept of fairness and equal opportunity is necessary
given the SPE status of Zespri which does not allow
Growers to use alternative channels if they are unhappy
with the terms of supply.
The concept of “Supplier” who contracts with Zespri is
in some cases the Supply Entity (the party who receives
payment from Zespri) and in others a virtual entity being
neither a Supply Entity nor Post-Harvest. We have been
unable to identify any benefit from the virtual “Supplier”
concept but believe that it removes clarity from the
respective roles of the Supply Entity and Post-Harvest.
Therefore, we strongly recommend that Zespri should
contract with the Supply Entity whom it pays for the growers’
fruit, who in turn will contract for necessary services with the
growers, with post-harvest and with other logistic providers
such as Tauranga Kiwifruit Logistics (TKL).
We acknowledge the current role of ISG as a platform for
Zespri and Supply Entities to negotiate the contract, and
39
deal with supply issues on a timely basis. Under separate
governance proposals elsewhere in these KISP proposals,
IAC will not exist and therefore the link between ISG and
IAC will cease. Due to the nature and role of the proposed
Grower Council it is not appropriate that ISG, or similar,
report to or have a direct link to the Grower Council. We
recommend that the contracting parties, Zespri and Supply
Entities, develop appropriate flexible decision-making
forums to negotiate and operate the contract, but with a
high degree of disclosure and transparency to all Supply
Entities, to the Grower Council as required and to growers
in general. We envisage different people from Zespri and
Supply Entities being involved in different aspects of the
contract. Different people may, for example, deal with time
payment calculations than those who deal with logistic or
delivery matters. Supply Entities may need to up-skill to
fulfil this role, and by participating they will up-skill. This is
another example of the industry maturing and will require
the Grower Council to provide appropriate training as
well as keep supply entities fully advised on supply chain
developments.
Our recommendations in regard to the Supply Contract are:
(a) T hat the broad concept of the existing contract be
retained. A large part of the supply terms needs to be
common terms to reflect equal opportunity to all.
(b) T hat the contract allow Zespri greater flexibility to
negotiate particular arrangements with individual
Supply Entities without general approval (70%), subject
to appropriate governance including transparency
and limits as to value and/or volume and/or equal
opportunity in the offer. This will allow faster innovation
and flexibility in the supply chain.
(c) Consideration is given to how the contract can have
an underlying foundation of key points or rules that
are generally unchanged from year to year (or perhaps
reviewed on a 3 year cycle) and other sections that are
annually reviewed. This would probably require a full
rewrite of the contract, which may be due.
(d) In general, an overriding principle of supply contract
terms should favour supply rather than non-supply.
(e) T hat the contacting party to the contract be the Supply
Entity (as is already the case with many contracts but
not all), being the party that receives the payments
from Zespri and effectively supplies the fruit to Zespri.
The Supply Entity will contract with post-harvest, logistic
providers or whoever for supply services.
(f) T hat the need for Option B contracts be reviewed as
they add complication and we can’t identify any benefit
for the supply chain.
(g) T hat ISG in its present form be replaced by a flexible
decision making structure as agreed between the
contracting parties, with a high level of reporting and
transparency to Supply Entities, the Grower Council and
growers in general.
(h) G
reater in-market accountability continue to be pursued
by all parties.
40
(i) Further, while the standard point of purchase should
remain FOBs with in-market responsibility, the
opportunity for in-market delivery to the single Zespri
distribution channel should be enabled to obtain any
benefits available from such an arrangement, including
in-market packing and storage. However, responsibilities
for managing the in-market inventory and dealing with
the customer (including quality assurance), should
always remain with Zespri.
(j) That serious consideration is given to contracting rather
than allocating, or first-past-the-post, early and/or late
fruit. There are inefficiencies in how the early fruit is
supplied in a competitive rush, and excluding late fruit
may simplify and make time payments more robust,
while allowing some Supply Entities to specialise. Ditto
as already done to some degree with minor pack types.
Early, such contracted kiwistart, may be based on
delivery rather than packing.
Other/Sundry
(a) Z
espri should give consideration to all reporting being
in kilograms rather than trays.
INNOVATION WORKING GROUP REPORT
Introduction
KISP FRAMEWORK
INNOVATION
11. T o maximise the New Zealand kiwifruit industry’s
global competitive advantage the New Zealand kiwifruit
industry must continue to develop and implement a
world-class and sustainable R&D programme.
12. A
s an integral part of the SPE, the New Zealand
kiwifruit industry must have the ability to develop,
own, licence, control and maximise the value
generated from the world’s leading portfolio of kiwifruit
PVR varieties.
The key themes made in the
submissions were:
•Innovation is a critical industry-good function, which has
delivered a tremendous amount of value to the industry
over time
•As such it needs to be managed by a pan-industry
body to get the necessary scale of investment and
dissemination of knowledge to benefit the industry
•That Zespri is best placed to manage the innovation
function, but it must ensure the innovation programme
is open to the best ideas and partnering with third-party
providers
A small number of submitters expressed a counter view
that the innovation function should be removed from Zespri
and either invested in another pan-industry body as an
industry- good function, or be left to competitive tender.
Summary of the working group’s
discussion
The group agreed that the fundamental question being
asked by submissions made on both principles was:
“Who is the natural owner of the innovation process in the
industry?”
In answering this question, the group agreed that the
single desk structure provided growers with a number of
benefits.
Among those benefits was the ability to build the Zespri
brand globally and to create the scale and coordination to
develop an effective innovation programme (including both
market and product research and development, as well as
technical transfer, on-orchard productivity and the breeding
programme) for the benefit of New Zealand kiwifruit
growers.
It was observed that Zespri currently spends more on
research and development than competing horticultural
industries and this has contributed to its strong
international presence and premium branded price
positioning.
With regards to the ownership of the breeding programme,
the group agreed there was a significant body of research
and evidence to suggest that the world’s best innovative
companies achieve this position through an intimate
understanding of their markets and consumers. Also
agreed was the fact that for product development to
generate real value it has to be strongly market-led.
If the product development function was owned by a party
other than Zespri - the industry’s global marketer - it would
result in a separation of the investment in R&D from the
organisation charged with generating the best market
return from the investment. This would have the potential
to lead to a misalignment in commercial drivers, which in
turn could lead to sub-optimal outcomes for generating
sustainable grower wealth.
An issue had been raised in the industry submissions
regarding the potential risk of Zespri ownership of Plant
Variety Rights (PVRs) in the event of a future deregulation.
This is a reasonable issue to raise, however, it was felt
that while the risk is low, this could be addressed at any
time by placing the PVR’s into a legal structure such as a
“Growers’ Trust”. Licensed in perpetuity, a Growers’ Trust
would have the full rights to develop and commercialise the
varieties for so long as the SPE existed.
The group also discussed how, given the SPE, there could
be confidence that Zespri was agile and motivated to
access “best in class” innovation from wherever it was
available. This would include a willingness to partner with
third-party variety owners (on-shore and off-shore), where
it is demonstrated that they own superior performing
varieties to the Zespri varieties.
The group reviewed, and was satisfied by, the robust
market and scientific-based cultivar assessment process
undertaken by Zespri when considering the performance
of potential commercial varieties. The comprehensive
assessment process considers the performance of a
41
variety across the supply chain from orchard to market,
with a focus on the commercial performance of the variety
for growers and for customers.
With regards to ownership of the tech-transfer/ onorchard productivity innovation function, the group agreed
that “ownership” should sit jointly with Zespri and an
appropriate grower representative body (depending on the
outcome of the industry governance and ownership work
streams).
This position was based on the observation that supplyside innovation was an industry-good function that not
only assisted on-orchard performance but supported the
delivery of a premium-quality product that met consumer
and regulatory market requirements.
It was recognised that both Zespri and the grower
organisation must be closely aligned to ensure that the
research programme was relevant, open to accessing
“best-in-class” innovation from other parties and remained
focused on delivering market-led outcomes that would drive
grower wealth.
ALTERNATIVES
The alternative to Zespri owning the industry’s PVRs is
to establish a separate company or trust on behalf of all
growers. On first consideration this may seem a suitable
solution as it would involve insulating the ownership of
the PVRs from the risk that Zespri may be wound up and
PVRs subsequently lost to the industry. However, it is
not perceived to be an ideal alternative for the following
reasons:
Those who support moving the industry’s PVRs to a
separate company or trust advocate this will strengthen
the Single Point of Entry structure. In practice it will not,
as it introduces a separate organisation to the industry’s
jewels. There will be a loss of focus on the development of
market-led new varieties and will present the opportunity
for PVRs to be licenced to companies other than Zespri.
Any splitting of PVRs between countries and markets
breaks down the power of the Single Point of Entry and will
see a steady deterioration of the advantages that accrue
from the Single Point of Entry.
Another organisation will also bring with it additional cost
and the problem of how it will achieve a mandate from
growers, plus who are the growers that it will pay any PVR
proceeds to? Grower oversight of its decisions will likely be
less than the proposed oversight of Zespri.
The best protection for the Single Point of Entry, and
the industry’s PVRs, is for Zespri to have as its owners
as many NZ growers as possible with their production
aligned to their shareholders - ensuring there is sufficient
capital for Zespri to withstand financial misfortune and to
develop the best possible PVRs for the benefit of Zespri’s
shareholder growers.
42
Recommendations
Overall, it was felt that a market-led, pan-industry
innovation function was critical to support both a worldclass sales and marketing organisation and to deliver
sustainable wealth of New Zealand kiwifruit growers. In line
with this, the group recommends that:
1. Zespri is the appropriate body within the Kiwifruit
Industry to coordinate and manage the innovation
function.
2. Co-opting subject matter experts from across the
industry as project team members on specific projects
is an appropriate mechanism to engage wide industry
participation. See appendix 4.3 Innovation investment
(as a percentage of revenue) compared to other
primary sectors.
3. Ownership of PVR’s should remain with Zespri to
ensure alignment of investment in breeding with
commercialisation responsibilities. Zespri is to be
charged with managing the future risk around PVR’s
to ensure ownership and access for New Zealand
Kiwifruit growers.
4. Zespri should continue to manage and/or coordinate
on-orchard R&D and tech transfer. Given the growers’
direct stake in this activity, the Growers Council,
on behalf of growers, should maintain visibility and
oversight of the annual programme.
Please find in Appendix 4:
1. Zespri Innovation Strategy overview
2. Other industry approaches to a common R&D/ techtransfer function
3. Zespri Innovation investment and industry investment
vs other industries
FUNDING WORKING GROUP REPORT
Introduction
KISP FRAMEWORK
FUNDING
13. Zespri is funded and remunerated appropriately to
ensure it can deliver the full scope of its responsibilities
Submissions referring to funding
There was a focus on transparency being needed in terms
of how Zespri is funded and accounts for costs and grower
money.
Alongside the need for transparency, the key focus was
on the need for Zespri to be accountable to a set of
commercial KPIs determined by growers, with those KPIs
having a strong link to the OGR delivered to growers.
•“Zespri is a service provider - needs its scope set and
returns linked with grower returns”
•“Should be benchmarked to outside but similar
industries”
•“Costs and returns must be transparent”
•“Zespri funding should be based on its ability to deliver
OGR to the growers”
•“There seem to be no controls - seems to be excesses
i.e. employee travel to markets and KGI travel to
markets”
•“Must be performance based so income reduces in poor
years”
There were a small number of comments that emphasised
that Zespri needs to be funded to a level to allow it to
successfully deliver its role:
•“Any successful business must be adequately resourced
to be successful in achieving goals”
•“Needs to be balanced with services, production,
profit capital requirements and other aspects of future
success”
•“The commission is very commercial and works well for
growers and Zespri. We must ensure Zespri remains
strong and not set the commission at a lower level”
•“Don’t allow Zespri to be strangled to the point that
there is very little incentive to act in a commercial risk
taking environment.”
The questions around the funding of 12-month supply were
identified as needing to be addressed in that consideration
needs to be given to the proportion of crop in the northern
hemisphere compared to the southern hemisphere and
how much each crop funds Zespri’s operations.
This document sets out the proposal of the Funding
Working Group, formed as part of the Kiwifruit Industry
Strategy Project and tasked with considering how best to
give effect to Principle 13.
The proposal is the outcome of several meetings and
detailed consideration by the Funding Issues Working
Group (“The Group”)
Outline
The consultation document describes the key concepts
developed by the Group. The Group’s proposal is then
set out in two parts. The first part describes the funding
requirements from an annual funding perspective, the
second from a medium term funding perspective. The
consultation document finishes with the steps required to
implement the proposal.
Key Concepts
The Group placed the “New Zealand kiwifruit grower” at the
centre of its considerations and identified the following key
concepts:
volume and risks associated with the business
•Zespri must act in the best interests of growers (i.e. as if
it owned the total industry) with a long-term perspective
and also needs the most appropriate cost control and
division between Zespri and the pool
•Both NZ and offshore growers must pay their fair share
of Zespri costs. Value should not be bundled, i.e. each
business area should stand on its own and not support,
or be supported by, other business areas
•Transparency is a requirement
•Zespri is a commercial business and should act accordingly
•Zespri must have KPIs with industry (e.g. OGR, fruit and
service per tray) and Zespri’s remuneration must be
commercially relevant
•Alignment will be addressed by the Zespri Ownership
Issues Working Group.
Proposal - Annual Funding
A review of international produce marketing companies
discovered that these companies generated an average
Earnings Before Interest and Tax (EBIT) profit of 1 to 5
percent, with an average of approximately 3 percent, over
the past 3 years. The Group acknowledged that Zespri is
43
not like these marketing companies in that Zespri is the
vehicle which carries out the New Zealand Kiwifruit Export
Regulations 1999. A 2 percent EBIT, which is split evenly
between Zespri and the Pool, was derived as a reasonable
margin. This gives an expected margin to Zespri of 1
percent EBIT on average which is at the bottom end of the
range of comparable companies. The split prevents disincentivising Zespri in developing markets and shares the
volatility in the outcome of the calculation.
The Pool 50 percent ‘profit share’ is distributed to growers
and replaces the current loyalty payments of 25 cents per
first class tray supplied. With the EBIT ratio set at a target
of 1 percent for the corporate, the corporate operating profit
from New Zealand kiwifruit cannot change significantly as
compared to the existing margin structure, and automatically
resets as sales and overall profitability change. Under the
proposed model in 2013/14 a net margin of 7.8 percent of
net sales would be calculated which is similar to the existing
margin model. However as the business grows, the net
margin based off the 5 Year plan is expected to reduce to
6.8 percent in the 2018/19 year.
FRUIT RETURN (“RETURN FROM FRUIT SALES”)
Fruit Return was chosen as the basis for the margin
calculation rather than at Net Sales or a mix of Net Sales
and Fruit Return. Modelling proved Fruit Return to be the
most robust and transparent basis for the calculation as it
displayed the direct cost impact.
MARGIN RE-SET IN LAG YEAR
To reduce volatility a band will be established around the
2 percent margin. When the profit goes below 1.5 percent
(0.75 percent Zespri, 0.75 percent Pool) or above 2.5
percent (1.25 percent Zespri, 1.25 percent Pool) it will
trigger a margin reset for the following year. The reset in
the following year means that in tough years, the corporate
profit will be down and growers will get more income than
they normally would have. Additionally, if the corporate
overspends, the cost is split 50/50 in that year as
opposed to the pool fronting 100 percent of the cost which
would be the case if the margin was reset within the year.
EXTRA-ORDINARY ITEMS
“Extraordinary” is defined as an item in a company’s
accounts not arising from its normal activities. In any given
year when an extraordinary item occurs, this item - while
it will affect the financial result of that year - is not to be
included in the calculation of the margin going forward.
The cost or gain of the item will be shared evenly between
Zespri and the pool in that year. The Group agreed this was
preferable to adding a risk margin into Zespri’s profit and
was in the spirit of a cooperative model.
ALLOCATION OF PROFIT AND LOSS ITEMS
Within Margin Calculation
Net NZ Supply Grower Pool Return (Net Pool Revenue less
Pool Costs – refer published ‘Alternate Revenue Statement’
in Annual Report)
Innovation Co-funding Revenue (excluding New Cultivar
Programme)
Revenue from commercialised Innovation projects (excluding New Cultivar Programme)
Innovation Costs (excluding New Cultivar Programme)
Class 2 Subsidy Costs
Onshore Overheads Costs
Offshore Overheads Costs (including commissions)
Depreciation and Amortisation Costs (excluding
Development/Amortisation costs for Zespri Cultivars)
Abnormal taxation costs / penalties that relate to the NZ
Supply Grower Pool
Taxation relating to the NZ Grower Pool activities that
exceeds “normal” New Zealand taxation on the Zespri ‘profit
share’.
ENHANCEMENTS
Enhancements, such as Key Performance Indicators (KPI’s),
for Zespri were reviewed and transferred to the Industry
Governance Issues Working Group for its consideration and
final assessment on behalf of KISP.
CONSIDERATION OF COMMERCIAL DRIVERS
Other fruit exporter businesses are not broadly comparable
to Zespri due to their different ownership structures, level
44
Outside Margin Calculation
Net Non NZ Supply operating profit before tax including
Zespri Overhead costs associated with Non NZ Supply
Innovation Co-funding Revenue for New Cultivar Programme
Zespri Cultivar License Revenue
Zespri Cultivar Royalty Revenue including the Defence Fund
Innovation Costs for New Cultivar Programme
Amortisation for Development costs for Zespri Cultivars
Net Corporate Interest Revenue
Taxation Cost
of capital investment and the degree of vertical integration
across the supply chain.
A relatively low 1 percent EBIT Zespri margin (after the
50/50 share with growers) was proposed due to Zespri’s
relatively low capital investment requirements, and also
due to the current NZ pooling arrangements assuming
a large proportion of market risk. The rationale for the
EBIT margin including the corporate onshore / offshore
overheads, and depreciation / amortisation costs
(excluding Zespri cultivars), is that this encourages Zespri
to invest in activities that improve the NZ Pool returns.
Under the current structure, Zespri is not commercially
incentivised to invest in systems that return benefits to
the NZ Pool, but do not return an adequate return on
investment to the Corporate. This proposal encourages
a greater level of “industry-good” investment and closely
reflects the co-operative nature of the NZ Kiwifruit Industry.
Proposal – Medium Term Funding
Shareholder equity of the Zespri Group as at 31 March
2014 was $89.4m. The current board-approved dividend
distribution range is 70 – 90% of available profits each
year. PwC have been contracted to analyse the optimal
future capital requirements of The Group, taking into
account the proposed growth in kiwifruit volumes, which
would be needed to support bank borrowing, derivative
trading and adverse trading events.
This work is currently in progress and is expected to be
completed in August 2014.
Implementation
ANNUAL FUNDING
Implementation is planned to occur with the 2015/16
Supply Contract and will be based on the margin calculated
in the 2013/14 year at 12.05% of Fruit Return, being for
comparative purposes a commission margin of 7.8% of Net
Sales
This margin calculation is an industry and governance
decision that will not have an impact on the Kiwifruit
Regulations 1999.
As this proposal is still at the consultation stage, and is
subject to change, Zespri have not yet considered the
impacts of this proposal on taxation, imputation credits,
hedging, loyalty payments and other legal / regulatory
matters. Only after a proposal has been agreed as part of
the KISP process would Zespri conduct a full review of the
implications on these matters, and report those findings
back to the industry prior to any implementation.
45
GLOSSARY OF TERMS
Collaborative Marketers
see the definition of Single Point of Entry
Corporatised
The conversion of a government- controlled industry or
enterprise into an independent company
DIFOTIS
Delivery in full, on time, in specification. This is a supply
chain measure used to assess whether a post-harvest
operator has met the order requirements when delivering
fruit to Zespri.
Duopoly
Is where two companies operate the Single Point of Entry
exclusively alongside collaborative marketers. At present
there is only company operating the Single Point of Entry
and that is Zespri Group Ltd.
EBIT
Earnings Before Interest and Taxes (EBIT). A measure of a
firm’s profit that includes all expenses except interest and
income tax expenses
Entities, Grower Entities, Supply Entities
Are groups of growers who are linked to specific postharvest operators. The post-harvest operator provides
packing, cooling and logistic operations for these growers. Entities are also called Grower Entities or Supply Entities.
FOBS
Free On Board Stowed (when fruit is shipped). Zespri
takes ownership of fruit when it is loaded on a vessel.
FTA
Free trade agreement. An agreement between countries
which eliminates tariffs, import quotas, and preferences on
most (if not all) goods and services traded between them.
Greenfield’s operation
This is where an orchard is developed starting from bare land.
ISG
This is the Industry Supply Group. The ISG prepares the
supply agreement and manages the supply chain.
KPIs
Are Key Performance Indicators. KPIs are used to measure
the performance of a company or organisation.
OGR
Orchard Gate Return. It can either be OGR by tray or OGR
by hectare - a benchmark measure of financial return to
grower.
Oligopoly
A market situation where there are a small number of
procedures.
Pan-industry
Is where a concept or proposal applies across the whole
industry and to every participant in the industry: growers,
post-harvest operators and Zespri, for example.
46
PVR
Plant Variety Right. A grant of Plant Variety Rights for a new
plant variety gives the exclusive right to produce for sale
and sell propagating material related to the variety.
Single Point of Entry
The Single Point of Entry or SPE is created by the Kiwifruit
Industry Restructuring Act 1999 and the Kiwifruit Export
Regulations 1999. Under the SPE only Zespri Group Limited
and collaborative marketers can export kiwifruit to all
countries around the world with the exception of Australia.
This gives Zespri, in economic terms, a monopsony which
is a market situation where there is only one buyer. Zespri
is the one buyer of New Zealand kiwifruit for export to every
country around the world with the exception of Australia
and where there are collaborative marketing approvals for
kiwifruit varieties not owned by Zespri. There is no limit on
who can export kiwifruit to Australia – this is because of the
Closer Economic Relations agreement between New Zealand
and Australia. Collaborative marketers must first get
approval from Kiwifruit New Zealand to export kiwifruit and
can only export in collaboration with Zespri. Collaborative
marketers are also required to increase the overall wealth of
New Zealand growers.
APPENDICES
APPENDIX 1 – SINGLE POINT OF ENTRY ADDITIONAL
PAGES
1. Alasdair MacLeod - biography
Alasdair is an experienced and successful management
consultant who has been involved in the review and
strategy formation for several New Zealand industries
including Aquaculture, Horticulture, and the Red Meat
Sector as a Deloitte Partner. He is currently the Chairman
of Optimal Workshop Limited, Tomatoes New Zealand,
deNada Advisory Board, and Silverstripe, and is an
Independent Director for the Port of Napier. He chairs the
Hawkes Bay branch of Export New Zealand, and is still
actively involved in the Primary Sector, working regularly
with AgResearch, Plant & Food Research and MPI, as well
as being an accidental avocado grower. He has previously
been a Director, Energy Sector for Unisys, Advisory Board
Member for Creative HQ, Chief Executive of First Electric
Ltd and Senior Manager at Deloitte Consulting. 2. Kiwifruit industry data
Green and Gold Returns are an indicator of the success of
the SPE
47
The returns that New Zealand kiwifruit growers receive are high relative to the returns of our southern hemisphere
competitors, Chilean growers.
48
Zespri Suppliers
Ministry of Primary Industries Kiwifruit Vine Health Growers (NZKGI) Zespri
-‐ Execu8ve -‐ Staﬀ Zespri Zespri Board Suppliers
Zespri Industry Supply Group Suppliers Organic
Suppliers
Gold Growers (NZKGI) Green14 Zespri Industry Advisory Council Zespri Board Zespri Execu8ve Kiwifruit New Zealand Growers NZKGI Grower Groups Packhouse/ -‐ Green Coolstore (COKA) -‐ O
rganic Supplier Zespri/NZKGI Development Groups
Growers (NZKGI) Green
NZ Kiwifruit Growers Incorporated 25 Regional Representa0ves 12 Industry Group Representa0ves Grower / Supply En88es Kiwifruit Growers APPENDIX 2 – INDUSTRY GOVERNANCE
ADDITIONAL PAGES
1. Current Industry Structure
49
2. Proposed Industry Structure
50
3. Key Change Index
OneThe Grower Council has the roles of:
1) Training supply entity members on the supply
and payments systems and governance and entity
management;
2) Keeping supply entity members informed about
supply agreement, grower equity and strategic
supply chain and logistical issues.
TwoStated in the Grower Council’s Rules to become
a principle is that Grower Council members are to
be growers who earn the majority of their kiwifruit
industry income from orcharding operations. This
is not to be a rule. Growers will be asked to judge
if the candidate is suitable in their view to be a
Grower Councillor.
To achieve this principle, Councillors will
be required to disclose before election or
appointment: their skills; their conflicts; what
they see their purpose on the Grower Council to
be; their main source of kiwifruit income; and any
areas of disagreement they have with the Grower
Council’s Purposes and Roles. Growers can then
vote, or appoint, based on this full disclosure.
ThreeZespri’s Constitution is to incorporate a
requirement that Zespri provide necessary
information to the Grower Council to enable the
Grower Council to report on Zespri’s performance to
growers.
FourThe Supply Agreement contracting parties are to be
Supply Entities and Zespri.
FiveThe Grower Council (at its option) may have
observers at meetings on the supply agreement
and supply chain operations between Zespri and
Supply Entities.
SixSupply Entities are to determine who will represent
them at meetings with Zespri on the supply
agreement and supply chain operations.
Zespri will run a commercially orientated supply
chain.
NoteThe Industry Supply Group as currently constituted
and Registered Suppliers / Suppliers will no longer
be part of the onshore industry structures.
4. Draft Charter for the Grower
Council
Version as at 26 July 2014
GROWER COUNCIL’S PURPOSE
The Grower Council’s key purposes are:
1. To be New Zealand-grower focused.
2. To represent New Zealand growers’ interests.
3. T o measure and report to growers on Zespri’s
performance ensuring a sustainable New Zealand
kiwifruit industry that maximises New Zealand kiwifruit
grower returns and maximises the performance of the
Single Point of Entry.
4. T o measure and report to growers on supply entities’
and post-harvests’ performance.
5. To ensure that Zespri maintains it key purposes which
are:
•To be market focused
•To maximise grower returns.
GROWER COUNCIL ROLE
A. To provide growers with a responsible, informed and
timely view on:
1. The effectiveness of the Single Point of Entry and
Zespri as the Single Point of Entry marketer; and to be
the industry advocate of a high performing Single Point
of Entry.
2. The performance of: Zespri, Kiwifruit NZ, collaborative
marketing and collaborative marketers, HEA’s Kiwifruit
Product Group for Australia, supply entities, PostHarvest, Kiwifruit Vine Health, HortNZ and other
industry organisations.
3. The process for the management of grower payments.
4. The process for the expenditure of grower funds.
5. The process for the management of grower levies.
6. The development and performance of the supply
agreement.
7. The development and performance of the supply
chain.
B. To form views on grower equity and industry-strategic
issues and inform growers of these views, and in particular
to:
1. Represent all growers’ interests to central and local
Government and the wider community.
2. Act as a sounding board for Zespri’s decisions and to
ensure that Zespri is aware of growers’ concerns and
aspirations.
3. Monitor and have input into Zespri’s on-orchard
research and technology transfer programmes.
4. Assist growers with their concerns.
5. Undertake industry-good functions (e.g. labour
supply, career progression, industry up-skilling
and development programmes, future leaders’
programmes)
6. Consistently improve growers’ understanding of the
supply and payment systems, particularly supply entity
members.
7. Take over the grower advisory functions of the Industry
Advisory Council, NZKGI and development / product
groups and, as required, consult with grower groups
such as organic growers (COKA) and groups affiliated
to the Grower Council.
8. Receive and evaluate reports from Kiwifruit New
Zealand, collaborative marketers, Kiwifruit Vine Health,
HEA’s Kiwifruit Product Group for Australia and other
industry organisations, and report to growers on their
performance.
9. Maintain an industry-risk register (for example, the risk
of in-market residue finds, notating who is responsible
for management of this risk).
10. Maintain the Grower Council’s Code of Conduct.
51
5. D
raft Grower Council Code
of Conduct
26 July 2014
1. Policy Statement
This Code of Conduct is the framework of the standards
by which the members of the Grower Council are expected
to perform their duties. The Code of Conduct provides the
basis for best practice governance and decisions that are
consistent with the industry’s principle, councillors’ values
and legal obligations.
2. Industry’s Principle
social and regulatory issues for the benefit of New Zealand
3. Councillors’ Values
Councillors will undertake their duties:
In accordance with the above stated industry’s principle;
Promoting and acting in the interests of all New Zealand
kiwifruit growers;
With care and diligence, including giving proper attention to
the matters before them;
By preparing for, and contributing to, all meetings;
By conducting themselves so that their integrity is beyond
question;
By not behaving in a manner that has the potential to
bring the kiwifruit industry’s image, or the Grower Council’s
image, into disrepute;
By implementing the policies and decisions of the Grower
Council and the Grower Council’s Executive Council; and
To the best of their ability, by using reasonable endeavours
will ensure that all Grower Council records and documents
under their control - including financial reports - are true
and correct.
4. Representation and Consultation
Councillors will:
Represent their constituent growers to the best of their
abilities; and
Consult their constituent growers on issues requiring a
vote at the Grower Council before the vote is taken, except
where an urgent decision is required.
5. Confidentiality
Councillors will maintain and protect the confidentiality
of non-public information entrusted to the Grower Council
and comply with confidentiality agreements, except where
disclosure is allowed or required by law. A Councillor who
is elected by, or has a special allegiance to, a particular
stakeholder may only disclose confidential information to
that stakeholder with the express authority of the Grower
Council.
52
6. Conflicts of Interest
Each Councillor will fully disclose all relationships he/
she may have with kiwifruit industry organisations, and
relevant private or other business interests to the Grower
Council, in order that the Grower Council may assess the
Councillor’s independence. Councillors must strictly adhere
to the Grower Council Conflicts of Interest Policy, which
sets out the rules and procedures for dealing with actual or
potential conflicts of interest in more detail.
7. Opportunities
Councillors will not take any opportunity discovered through
their position on the Grower Council, or their use of the
Grower Council’s property, for themselves or use the
Grower Council’s property (including the Grower Council’s
name), information, or position, for personal gain.
Councillors will not accept gifts or personal benefits of
any value from external parties if it could be perceived as
compromising or influencing any issue under consideration
by the Grower Council. Councillors will only trade in Zespri
Group Limited’s shares in accordance with the Grower
Council’s Zespri Group Limited’s share trading policy.
8. Proper Use of Assets and Information
Councillors will only create, and only retain, information
and communications required for business needs or to
meet legal obligations in accordance with the Grower
Council’s Information Management Policy.
9. Compliance with Law and Policies
Councillors will abide by all applicable laws, rules and
regulations and comply with all statutory and internal
disclosure requirements on a timely basis.
10. Reporting Unethical Behaviour
Councillors will report any illegal or unethical behaviour,
of which they become aware, to the Chairperson of the
Grower Council.
11. Waiver
Waivers from this Code of Conduct may only be granted by
the Executive Council.
12. Breach of Code
Any Councillor may be called to account at the Annual
General Meeting, Special General Meeting or a Grower
Council Meeting for an alleged breach of this Code of
Conduct, or for any action or lack of action attributable to
that Councillor. The procedures for dealing with a breach
of the Code of Conduct, as set out in the Grower Council’s
Rules, are to be followed when dealing with any allegation.
To be updated and authorised by the Grower Council when
duly constituted
6. D
raft Zespri’s KPIs and Reporting
– Work in Progress
as at 26 July 2014
The Grower Council has the key role of providing growers
with an authoritive and robust assessment of the Single
Point of Entry’s and Zespri’s performance. So that this role
may be achieved a series of Key Perfomance Indicators
and Reports are to be sourced from Zespri. The following
is a first attempt at identifying what information is required.
The Grower Council will finalise these KPIs and Reports
once established and adapt them as circumstances
require. Submissions on what should be included in the
following list are expressly invited.
ZESPRI’S KPIS
1. Final OGR per TE by Variety (7 Year Average FX)
2. Average Premium Pricing – Green & Gold
3. Zespri Total EBIT
Zespri Corporate Reporting – October (Interim) and June
(Final)
1. EBIT from NZ Kiwifruit ($ and % of Revenue)
2. EBIT Non New Zealand Supply
3. Global Revenue per employee
4. Total Overheads as % of Revenue
5. Earnings per Share
6. Net Dividend Yield
7. Net Tangible Assets value per share
8. Percentage Dry Shares
9. Percentage of revenue allocated to R&D
10. Cause of change from previous seasons
11. Pool costs as a percentage of pool revenue
Collaborative Marketing Reporting– June (Final)
1. Collaborative Marketing benchmarked against Zespri’s
performance in the same markets
2. Collaborative Marketing approvals and declines
3. Collaborative Marketing volumes and return
REPORTING REQUIREMENTS
Monthly Reporting – to be provided to the Grower Council
Executive Committee
1. H
igh Level Weekly Sales Report by Variety vs. Prior 2
years and vs. plan
2. Last 5 Weeks Average Run rate
Forecast Reporting (August, October, December, February
and Season Final)
Forecast Pack to be provided
1. OGR per tray by Variety
a. At Effective Exchange rates
b. At 7 Year Average Exchange rates
2. Total Fruit and Service Payments per tray by Variety
a. At Effective Exchange rates
b. At 7 Year Average Exchange rates
3. Market Mix by Variety
4. Off-shore Fruit Loss
5. Volumes sold by Variety
Season End Reporting – February (Interim) and June (Final)
1. Brand Awareness
2. P
remium Pricing vs. Chilean fruit by variety by main
market
3. Average Weekly Sales Rate by Variety
4. Net Price per TE
5. Foreign Exchange benchmarks
6. Direct Costs as a Percentage of Revenue
7. Promotion per tray
8. Promotion as a percentage of Revenue
9. DIFOTIS
53
APPENDIX 3 – ZESPRI OWNERSHIP
ADDITIONAL PAGES
54
55
APPENDIX 4 – INNOVATION ADDITIONAL PAGES
1. Zespri Innovation Strategy
Innovation is defined as a novel creation that produces
value; an innovation can be as slight as a new model
for characterising maturity specifications or as vast as
development of a new cultivar in a previously undefined
consumer category. Innovation is often confused with R&D
or the terms are used interchangeably.
The innovation value chain encompasses the end-to-end
cycle from R&D to its value realisation in the target society
at large. As such, R&D is only a subset of innovation that
is generally science-based research or focused on product
design and results in patentable inventions.
In developing an innovation investment strategy, Zespri
needs to understand what it aims to achieve. Most
companies invest in initiatives that span the risk and
reward matrix, and generally at three levels:
•Core: optimising existing products for existing customers
•Adjacent: expanding from existing businesses into “new
to the company” businesses
•Transformational: developing breakthroughs and
inventing things for markets that don’t exist yet
Investment decisions between these levels depend on the
company, but generally those that outperform their peers
allocate their investments in a certain ratio: 70% to core,
20% to adjacent and 10% to high-risk transformational
initiatives.
Zespri, through regulation, would likely consider that it is
constrained in investing too heavily in areas outside of fresh
kiwifruit. Therefore, the three investment level descriptions
may need to be adapted to fit the Zespri context:
•Core: optimising existing cultivars/production systems/
supply chain technologies/marketing platforms for
growers, postharvest operators, Zespri operations,
marketers, customers and consumers
•Adjacent: expanding from existing cultivars/growing
systems/supply chain technologies/marketing platforms
Platform
Portfolios
New cultivar development
Breeding
On-orchard
Productivity
Sustainable production systems
into “new to the company” cultivars in existing segments
(Green and Gold)/production systems/ supply chain
systems and technologies/marketing platforms
•Transformational: developing new kiwifruit segments
(convenience/new flavour)/novel production systems/
advanced supply chain systems and technologies/
unique marketing platforms that are a long way from our
existing business model
Considering these definitions, and given the heavy
investment in the new product development space, Zespri
spends more in the adjacent space than most companies.
An aspirational goal for Zespri, with respect to investment
level ratios, has been set as 50% to core, 40% to adjacent
and 10% to high-risk transformational initiatives.
FRAMEWORK FOR ZESPRI R&D INVESTMENT
A framework for R&D investment across five base research
platforms has been developed to underpin the sector’s
growth targets. The five research platforms are:
•New Cultivar Development (Breeding, Advanced
Selections)
•Sustainable Production Systems (On-Orchard Productivity,
Crop Protection)
•Psa Innovation (A future in the presence of Psa)
•Sustainable Delivery of Fruit (Market Access, Fruit
Physiology, Taste & Quality, Engineered Supply Chain)
•Value addition/creation (Health & Nutrition, Consumer
Understanding)
Final decisions on current and future spend in the
chosen platforms will depend on the size of the prize, the
probability of success and any leverage that can be gained.
The eventual desired proportions of innovation spend are
presented in Table 1 below, and are not set in concrete.
These desired allocations represent a level of balance in
the portfolio and are targets rather than policy.
TABLE 1:
Components of the innovation programme with estimates
of investment as a percentage of total investment.
Desired Allocation
Advanced Selections
40%
Crop Protection
24%
Psa innovation
A future in the presence of Psa
Sustainable delivery of fruit
Market Access
Value addition/creation
Health & Nutrition
Engineered
Supply Chain
Integrated*
Fruit Physiology, Taste
& Quality
Consumer Understanding
16%
20%
*It is anticipated that this platform will be integrated into sustainable production systems from FY 2015/2016
56
As the industry emerges from a
crisis-constrained environment
While it would be desirable to be investing in innovation in
the areas to the proportions identified in Table 1 above, we
have been very focused on tight investment control as a
result of the Psa crisis. This situation meant that we had to
adapt away from a desired balance to one of focus on the
key elements to reduce impact of the crisis. This resulted
in a focus on breeding, new cultivar commercialisation,
retaining market access and management of Psa. It is
anticipated that the Psa Platform will cease to exist in
the 2015/16 budget year, and that the activities will be
consumed largely into the Sustainable Production platform.
The figure below outlines the calculated allocation of
investment by platform in 2014/15 in comparison to the
future desired breakdown of innovation spending.
PIPFRUIT NZ
•Pipfruit NZ Inc is the industry body that coordinates,
directs and manages the industry’s R&D programme.
It is also charged with developing and maintaining
an effective programme of technology transfer to the
nation’s pipfruit growers
•Funding for Pipfruit New Zealand Incorporated is largely
provided through a grower levy, currently 1.25 cents per
kilo
•Pipfruit NZ Inc. is the liaison between growers and
research providers. It relies on regular input from
growers and grower representatives, particularly the
directors of the company, and the regional and research
consultative groups
•The Research Consultative Group in turn links to, and
feeds off, information from regional consultation groups.
BEEF AND LAMB
2. Other industry approaches to a
common R&D/ tech-transfer function
•Levy funded - The sheep levy is 60 cents a head and the
beef levy is $4.40 a head
•Invest farmer levies in programmes to grow the sheep
and beef industry to provide sustainable returns now –
and for future generations
•Key programmes – Farm, Market, People and Information
– deliver innovative tools and services to:
- help farmers make informed decisions on their farms
- maintain market access and open up new
opportunities for New Zealand farmers
- improve the farming systems of New Zealand’s sheep
and beef sector.
DAIRY NZ
NEW ZEALAND WINEGROWERS
Figure 1: The FY14/15 proposed and ultimately desired investment
breakdown between innovation platforms.
•Described as an industry-good organisation, in that it is:
- Financially beneficial to New Zealand dairy farmers
- F ills a role that would not be undertaken by individuals
or groups of dairy farmers because either it is too
expensive for them to do on their own; or, the benefits
could not be captured by those making the investment.
•Funded by a levy on milk solids and through government
investment
•Had a budget of $72 million last year. The current levy
set at 3.6 cents per kg milk solids (plus GST)
•Stated purpose is to secure and enhance the profitability,
sustainability and competitiveness of New Zealand dairy
farming.
The Working Group also had a phone discussion with Dairy
NZ re: how its innovation/ tech-transfer function links to
the strategies of the industry’s marketers.
The summary of that discussion was while there
was alignment around broad industry goals – around
profitability, sustainability and competitiveness – there
was also a disconnect on some matters between Dairy NZ
and the marketers. For example, taking a long-term view with the breeding programme, and the genetics selected
- in terms of Dairy NZ gaining a clear indication of where
marketers believe milk components’ long-term value lies.
•Levy-funded on the sale of grapes collected by the Grape
Growers’ Council under the Commodity Levies Act 1991;
a levy on the sale of wine collected by the Wine Institute
under the Wine Act 2003; as well as user pays activities
and sponsorships
•R&D function is overseen by the Winegrowers Research
Committee (RC), which is appointed by the Winegrowers
Board
•The aim of the RC is to provide and promote a
technological basis for the New Zealand grape and
wine industry to remain internationally competitive as a
leading producer of premium quality wines
•The RC is responsible for identifying and reviewing
industry research needs, and determining the scope of
research required to meet these needs •New Zealand Winegrowers co-invests significant levy
funds into these programmes to create a critical mass of
research activity in the grape and wine area.
57
3. Zespri Innovation investment and industry investment vs other industries
58
APPENDIX 5
Cost/Benefit of Changing to an Integrated Onshore Supply Model
Suggested Cost/Benefit
KISP View
from an Integrated Model
Yes but current system
Pack scheduling
Minor pack types
Benefit
can improve
optimisation
Yes but current system
Inventory
Right fruit, right
Benefit and Cost
can improve
Optimisation
place, right time
Transport Savings
Container Milk Runs Benefit
Not significant issue
Yes but part of the
Commercial effort for Orchard to
Benefit
service/choice benefit to
crop procurement
Packhouse
Growers
Supply forecast
Supply Agreement
Benefit
No issue
accuracy
Procurement of
services (electricity,
Benefit
Loss from current system
packaging)
Administrative
Functions
Director’s Fees
Reduce duplication in
Benefit
Insurance
ancillary activities
Finance Costs
R&D – e.g. inventory
management
Possible Loss from
Quality checking
Benefit
current system
Area
Issues
Impact
Low
Low
Low
Low/Moderate but
potentially offsetting
Grower Benefits
Low
Low
High
Low
Network savings
Benefit
Low now, Future
could be more
IS Integration
Benefit
Yes current system can
improve
Low
Grower contract
rationalisation
Benefit
Low
Best practice spread
across industry
Overall competitive
cost pressure
Fruit loss
Spec adherence/
pushing specs
Preservation of SPE
No issue, as best
Benefit, but possibly cost practice may be current
average practice with less
from less innovation
competitive innovation
Advantage of current Potential Cost
system
Advantage of current Cost
system
No issue – or advantage
Potential Cost
of current system
Could be major issue if
Cost
growers have no packer
choice
Possibly initially
HIGH and then
shifts to LOW
Moderate
Moderate
Moderate
High
59

developing a sustainable and long-term plan to maximise the wealth

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