Fruit fight
By GARRY SHEERAN - Sunday Star Times
Last updated 09:19 06/07/2009
Starting with with a tiny pipfruit orchard and a mere handful of shares in Enza nearly a decade ago, Tony Gibbs scrapped and clawed, fought and ultimately bought his way to partial, then full control of the Apple & Pear Board's marketing arm - and the nation's apple exporting monopoly.
The monopoly was an unusual prize for a self-confessed free marketeer, but one Gibbs valued highly. If the government scrapped the monopoly, he warned then, it "does so at the peril of sending growers to the wall".
Now Gibbs, Guinness Peat Group's big hitter, is on the warpath again. In his sights this time is Zespri, controller of the kiwifruit export industry worth around $1.4 billion.
Once again he's bought an orchard - this time kiwifruit - which produces less than 1% of the nation's crop, and with shares in Zespri to match. And he's got plenty to say on monopolies, though this time with a different slant.
Zespri's monopoly on exporting kiwifruit beyond Australia is not only moribund, but a rort, and should be killed off, he says.
He's gone direct to cabinet ministers and political leaders with lengthy papers arguing that Zespri's iron-like control on kiwifruit exports means New Zealand is missing out on potential big export dollars. Zespri's grip should be broken, he says.
The irony is not lost on Ian Palmer, a fruit farmer in Nelson and chairman of growers organisation NZ Pipfruit. "In 2000 Tony had bought the monopoly [Enza] and so wanted to keep it. Things are different this time round," he said.
Two years ago when Palmer pulled up the last of his (green) kiwifruit vines to concentrate on growing new apple varieties, he sold his Zespri shares to Gibbs. But Gibbs, as a bona fide kiwifruit grower, can buy as many Zespri shares from growers or ex- growers like Palmer as he likes, it won't give him control of Zespri.
In the wake of the Enza pipfruit brouhaha, kiwifruit growers were determined to ensure their industry would remain firmly in their hands; as a result Zespri voting rights relate not to the number of shares held, but the quantity of kiwifruit produced.
So NZX-listed company Turners & Growers, 66% controlled by Gibbs' GPG, and which now produces around 700,000 trays of kiwifruit from its Kerifresh orchard in Northland, has 0.7% control of an industry which produces 100 million trays a year. Zespri has 2257 shareholders, the largest holding controls 1.45% of the shares, and production is similarly diversified.
Gibbs believes Zespri has breached its 1999 regulations on several counts, and this is just another instance. "It's highly irregular to play around with the voting structure in this way. It's unfair and its wrong, and it's not what the government envisaged," he said.
The signs of the fallout from the protracted and sometimes bitter struggle for control of Enza are writ large over the coming battle for control of the nation's kiwifruit industry.
"Tony can't acquire Zespri in the way he did Enza, so now he's attacking the model [Zespri's single-desk exporting monopoly] and the supposed lost opportunities for kiwifruit it creates," said Palmer.
Peter Ombler, president of growers organisation Kiwifruit Growers, said growers considered Zespri's voting structure "quite a clever mechanism".
Ombler said the struggle for Enza and the pipfruit industry had provided clear signposts to what could happen with the kiwifruit industry.
But kiwifruit growers faced a different situation from pipfruit growers nearly a decade ago. The Apple & Pear Board was in a shambles at that time, and dissatisfied growers were as putty in Gibbs' hands when it came to taking what seemed a reasonable price for their Enza shares. Ironically though, it was the growers who fought for the abolition of Enza's export monopoly, and against opposition from Gibbs.
After the event, many growers would look back and say they had thrown the baby out with the bathwater, said Ombler. A few years after deregulation, many small pipfruit growers went to the wall.
"The difference for us is that Zespri is doing a good job," said Ombler. "Simply, what we have works for us."
Palmer said the single-desk marketing operation had stabilised the industry's ability to market fruit, and there was a strong argument this stability had generated a lot of extra revenue for growers.
"I am not saying that a business like Zespri never makes mistakes. It has chinks in its armour, as did Enza those years ago, and Tony is working in the cracks again to exploit them," said Palmer. But to end the single-desk system would be fatal for the industry.
The flashpoint for Gibbs' ire was Zespri's decision to make growers destroy one million trays of green export fruit after days earlier knocking back an application from Turners & Growers to export 340,000 trays to new markets in Japan, Mexico and the US in a collaborative licensing agreement with Zespri.
Under legislation sought by growers, only Zespri or those exporters with a collaborative agreement with Zespri can legally sell kiwifruit in overseas markets other than Australia. Zespri had said the fruit T&G wished to export could be confused with another brand in the market, and that T&G had not collaborated sufficiently with Zespri to ensure there were gains for the industry.
A more fundamental issue for Turners & Growers is its plan to become a significant kiwifruit exporter by developing its own new varieties of kiwifruit. It has spent six years and "up to $4 million" testing those varieties and has secured global rights for three - a red, a new yellow and a new green kiwifruit - which it has successfully grown overseas and exported among other overseas countries.
Turners & Growers managing director Jeff Wesley said his company now wanted to grow the fruit in New Zealand and export from here which it must do under a collaborative agreement with Zespri, which is also doing tests on a red variety.
Wesley said Zespri had shown interest in their work over several years, expressed concern some T&G varieties might compete with their own, but wanted to see if they could work together.
Then out of the blue in March, he said, they were told their new varieties would have to undergo trials by Zespri that could take up to nine years, and that T&G would have to sign intellectual property over to Zespri for a 1.5% royalty fee.
(http://www.stuff.co.nz/business/industries/agribusiness/2567786/Fruit-fight)