Download THE NEW ZEALAND KIWIFRUIT INDUSTRY STRUCTURE (An

Incorporated under the Incorporated Societies Act
.
Ross Hart 021 052539882
Ted Meade 07 5493268
THE NEW ZEALAND KIWIFRUIT INDUSTRY STRUCTURE
(An overview prepared by the Independent Kiwifruit Growers Association Incorporated as at October 2013)
Overview
1.
The World Trade Organisation (WTO) has been advised by the NZ delegation that the New Zealand
kiwifruit marketer, Zespri, is a State Trading Enterprise. Zespri is the sole authorised exporter for New
Zealand kiwifruit to all markets other than Australia under the Kiwifruit Export Marketing Regulations
1999 (“Regulations”).
2.
It has been the understanding of the international kiwifruit industry that the New Zealand kiwifruit
industry structure operates with Zespri as a grower-owned and controlled cooperative marketer. New
Zealand Kiwifruit Growers are also of the understanding that they own and control Zespri.
3.
Further, it is considered that:
4.
(a)
Zespri is similar to New Zealand’s dairy cooperative, Fonterra, which is required to take all
milk produced and is subject to open export competition;
(b)
other exporters can obtain licenses or permits to export New Zealand kiwifruit;
(c)
the collaborative marketing system is fair to all owners of kiwifruit varieties; and
(d)
there is an independent regulatory body, Kiwifruit New Zealand ("KNZ") which assesses
collaborative marketing proposals and operates as an independent regulatory check on
Zespri.
Closer examination of the way Zespri operates, however, highlights that there have been several key
misrepresentations about this structure, which raise questions for not only growers but the NZ
Government and other countries who have to compete against Zespri in the international market
place.
Zespri’s ownership
5.
If Zespri were a true cooperative, all New Zealand kiwifruit suppliers would be shareholders, all
shareholders would be suppliers, and shares would be held in proportion to supply.
6.
The reality is that Zespri is a private company, with tradeable shares, and does not operate as a
cooperative. Zespri is answerable to its shareholders. Not all shareholders are growers. As illustrated
by the analysis below, one third of growers in New Zealand do not hold shares in Zespri so have no
voice in the way the industry is run but worse than that under one quarter of growers own and control
Zespri and therefore have all the say on the way Zespri and the kiwifruit industry is run.
7.
An analysis of Zespri’s 2012/2013 annual review and annual report as well as published material
shows that currently there are:
(a)
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2700 producers of kiwifruit in New Zealand;
8.
(b)
2155 Zespri shareholders; and
(c)
Approximately 350 Zespri shareholders who are not growers of kiwifruit (i.e. “Dry”
Shareholders, who have no voting power).
So it follows that there are:
(a)
9.
10.
895 growers of kiwifruit (33.1% of the total number of growers) who do not own shares in
Zespri (i.e. 2,700 Growers less producing Zespri grower/shareholders of 1805).
Further:
(a)
15.33% of the shares are owned by only 20 shareholders and a further 59.07% of the
shares are owned by 642 shareholders. So, 662 of a total of 2,155 shareholders in
Zespri, have 74.4% of the shares in Zespri. In other words, three quarters of the shares
in Zespri are owned by only 30% of the shareholders some of who are “dry” shareholders.
To analyse control correctly you need to take the 2,700 growers (rather than the 2155
shareholders) as the base. If you do that then you find that Zespri is 75% owned by
under 25% of NZ Kiwifruit growers.
(b)
A significant number of growers hold shares in Zespri in excess of their kiwifruit
production which further distorts the picture as to who is getting the most out of the
current structure.Because Zespri is an ordinary company and not a co-operative the
shares are freely tradeable and shareholding is not tied to production. While it is true that
overshared growers cannot vote in excess of their kiwifruit production at Zespri general
meetings that does not mean their dividend income is similarly limited. Among the 25% of
Growers that own 75% of the shares in Zespri are some growers (including two current
Directors of Zespri) who hold shares in Zespri in excess of the shares that they need to
hold based on their kiwifruit production. That would not be an issue in an ordinary
company exposed to competition but Zespri is not exposed to competition and has a
monopoly protected by government regulations. For that reason we do not agree that it is
right that growers can purchase shares in excess of their production in the same way that
we do not agree that there should be any “dry” shareholders. This is not about the
efficient allocation of capital or about growers choosing where to apply their capital. That
cannot be the case where there is neither competition nor an efficient and fully informed
market for Zespri shares. Were Zespri to publish the amount and effect of
“oversharing” we suspect it would demonstrate that a significant minority of
Zespri shareholders receive the majority of the dividend income of Zespri . This is
income which is generated from captive growers who have no say in how Zespri
accounts for and deals with their fruit returns because Zespri is controlled by
under 25% of all NZ Kiwifruit Growers.
Multinationals Dole, Sumitomo and Tokyo Seika also have an ownership interest in Zespri through
their shareholding in Seeka Kiwifruit Industries Limited. That company has the seventh largest
shareholding in Zespri.
Differences between the New Zealand dairy and kiwifruit industry structures
11.
New Zealand’s dairy exporter, Fonterra is a cooperative, owned by milk producers, with an open
entry and exit regime. Zespri is a private company, owned by shareholders that can pick and choose
what varieties, sizes and quantities of fruit it takes. Under the Regulations Zespri is the only company
allowed to export kiwifruit to markets outside New Zealand and Australia.
12.
Fonterra faces a credible threat of competitive entry in the dairy markets. The touchstone of the Dairy
Industry Restructuring Act 2001 ("DIRA") is the open entry and exit regime, which creates a
contestable market for farmers' milk. DIRA allows independent processors to compete in the dairy
markets, posing direct in-market competition to Fonterra. Independent processors are also able to
access raw milk from Fonterra, enabling them to compete in the dairy markets, and the DIRA also
allows dairy farmers to divert up to 20% of their weekly milk supply to independent processors.
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13.
DIRA thus represents a pro-competition regulatory regime with strong incentives for Fonterra to offer
an efficient price for farmer's milk. The regime is premised on the presence of viable competition,
which gives farmers choice, thus putting pressure on Fonterra to perform. Competition ensures
competitive tensions, encouraging innovation, and enhancing business diversity.
Other exporters prohibited from exporting New Zealand kiwifruit
14.
The kiwifruit regulatory regime, on the other hand, not only discourages competition but in terms of
exports (with the exception of Australia), actively prohibits it. The Regulations only allow for
collaborative marketing arrangements ("CMAs"), which are not a competitive arrangement.
Collaborative marketing approvals must be developed in collaboration with Zespri, which has adopted
a hostile attitude to such proposals by competitors, unless it suits Zespri's commercial interests.
15.
Under the Regulations, industry regulator Kiwifruit New Zealand (KNZ) is supposed to allocate a
proportion of the New Zealand crop for collaborative marketing arrangements with exporters other
than Zespri.
16.
However, an analysis of collaborative marketing shows that:
(a)
To date, the majority of CMAs have been for the export of Hayward green variety, including
organic Hayward which is not subject to PVR rights (i.e. it is an open variety which anyone
can grow without a licence).
(b)
The latest official data available is for the 2012 season, which shows that just 2.4 million of
the total New Zealand kiwifruit crop (102 million trays) was marketed under CMAs between
Zespri and other exporters last year (i.e. 2.35% of the total crop).
(c)
The data also shows that despite the total crop increasing since 2000 when the regulations
came into effect, collaborative marketing programmes have not increased and were down
on the 2011 season (3.6 million trays of a total crop of 113.9 million trays or 3.16% of the
total crop in 2011).
(d)
As far as it is possible to ascertain, on average, 45% of the fruit exported under CMAs was
actually exported by Zespri "collaborating" with itself. This artificially inflates the CMA
figures. If Zespri exports were removed, the figures would look even worse and the CMA
regime would appear even more of a marginal mechanism.
17.
Zespri claims that the collaborative marketing system allows others to export kiwifruit. In practice,
approval for collaborative marketing is only granted where it does not threaten Zespri's commercial
interests, so it is a marginal programme and does not impose any competitive check on Zespri.
18.
From an international perspective there is concern, particularly amongst Chilean and European
kiwifruit growers, that collaborative marketing is a trade euphemism for what is actually a system that
requires CMA applicants to price-fix with Zespri and to demonstrate that if granted a CMA the
exporter’s programme will not compromise Zespri’s ability to dominate or monopolise trade in the
markets in which Zespri operates.
An unfair system for plant variety right holders
19.
The Regulations and Zespri's activities supported by the Regulations are fundamentally inconsistent
with the PVR Act and the international treaty system for Plant Variety Rights known as UPOV. The
regulations have the effect of rendering PVR rights for kiwifruit almost redundant. The New Zealand
Government supports this situation with a $35.7 million investment in a joint venture between the
Government Plant and Food Research Organisation and Zespri for Kiwifruit variety breeding. This
may be a trade distorting subsidy.
20.
Unlike Zespri, which holds the plant variety rights ("PVR") for Zespri Gold, G9, G3 and G14 and has
exercised its full rights to commercialise the crop, all other owners of kiwifruit PVR’s are prevented
from fully exercising their exclusive proprietary rights granted under the Plant Variety Rights Act 1987.
Because of the Regulations, the only way in which a kiwifruit PVR holder other than Zespri could
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exercise their exclusive proprietary rights to commercialise the variety through export would be by way
of a CMA. Because of Zespri's hostile attitude to collaborative marketing proposals, and the lack of
independence of KNZ, PVR holders are currently prevented from commercialising innovative new
varieties of kiwifruit.
21.
The result is that owners of these new cultivars are reluctant to plant them in New Zealand. This leads
to such cultivars being planted in overseas jurisdictions rather than in New Zealand, including by New
Zealand growers who would generally prefer to plant such cultivars in New Zealand. As a result, New
Zealand is missing out on the potential profits generated by the commercialisation and export of new
varieties of kiwifruit, instead of making it one of our competitive advantages. New Zealand is also very
likely in breach of general world trade rules concerning reciprocity and the specific reciprocity
provisions of Article 4 of the UPOV Treaty system for Plant Variety Rights.
Independence of Kiwifruit New Zealand
22.
The WTO has been advised by the New Zealand delegation that:
“Applications from other prospective exporters, to export kiwifruit in collaboration with Zespri, are
assessed and decided on by Kiwifruit New Zealand, an independent regulatory body established
under the provisions of the Kiwifruit Regulations 1999.”
23.
From this statement, NZ Growers and other kiwifruit producing nations would understand that KNZ is
independent of Zespri. This is not the case.

There is no requirement that members of KNZ be independent of Zespri.
Three of the five current members of KNZ own shares in Zespri Group Limited and four of the
members grow Zespri PVR varieties.
According to KNZ’s Interests Register:
(i)
Mr Hendrik Pieters who is the Deputy Chairman owns 301,890 shares in Zespri as a trustee of
the Simise Trust;. He is also a trialist for Zespri’s PVR kiwifruit varieties and a grower of the
Zespri PVR varieties known as G3 & G 9.
(ii)
Ms Ruth Lee is a beneficiary of a trust which owns 50,500 shares in Zespri. Her husband, Ian
Schultz, owns 74,380 shares in Zespri. She is also a grower of the Zespri PVR varieties
known as G14 and G3.
(iii)
Mr Ian Greaves is a trustee and beneficiary of a trust which has shares in Seeka Kiwifruit
Industries Limited which is one of the top 20 shareholders in Zespri . He is also a grower of
the Zespri PVR variety G3.
(iv)
Mr Alister Hawkey is a trustee and beneficiary of a trust which owns 110,020 shares in
Zespri. He is also a trialist for Zespri’s PVR kiwifruit varieties and a grower of the Zespri PVR
varieties known as G3 and G9.

Regulation 36(b) of the Regulations requires that one member of KNZ be appointed by
New Zealand Kiwifruit Growers Incorporated or its successor. NZKGI is funded by a compulsory levy
on growers which is administered by Zespri. Zespri’s accounts show that it paid to NZKGI: c $899,000
in the year to 31 March 2011; c $751,000 in the year to 31 March 2012; and c $902,000 in the year to
31 March 2013; as well as unspecified additional amounts in “Industry-good funding”.

KNZ is substantially funded by payments by Zespri Group Limited as required by the
Regulations. $234,000 in the FYE 31 March 2011; $244,000 in FYE 31 March 2012 and $285,000 in
FYE 31 March 2013.

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KNZ operates from the same offices as Zespri Group Limited.
24.
The statement that KNZ is independent would reassure the WTO that there is an independent
regulatory check on Zespri’s activity. In fact, the majority of KNZ’s members own shares in Zespri, one
of its members is appointed by a body funded by Zespri and committed to supporting Zespri, and
most of KNZ’s funding comes from Zespri.
Zespri Brand and Grower Payment System
25.
Unlike other exporters all promotional expenditure for Zespri branded kiwifruit is paid for by growers
who are compelled by New Zealand law to supply their kiwifruit to Zespri. Last year Zespri spent $89
million on promotions which is arguably significantly brand rather than product spending. Legally,
growers do not own the Zespri brand and yet they have paid for its development year on year for 13
years by deduction from their fruit returns.
26.
Zespri shareholders (i.e. the 25% who own 75% of the shares) get the added benefit of this
promotional spend paid for by growers in the form of licence fees of up to $47,000 per hectare to grow
Zespri varieties and royalty income from those varieties. This income is generated by intellectual
property in the form of Kiwifruit Variety PVRs the development of which has been paid for by all New
Zealand kiwifruit growers and New Zealand taxpayers who have subsidised the development of these
kiwifruit varieties.
Zespri as an International Citizen
27.
Zespri was fined 450 million Korean Won by the Korean Fair Trade Commission in November 2011
for anti-competitive behaviour.
28.
Zespri subsidiary ZMCC was convicted earlier this year and fined by a Chinese Court in relation to a
customs fraud in China.
Published by Independent Kiwifruit Growers Association Inc. - October 2013
Information about IKGA




IKGA was established in May 2010 by a group of concerned kiwifruit growers.
IKGA aims to provide an independent voice for kiwifruit growers because it has no confidence in
the ability of KNZ or NZKGI to act as effective watchdogs on the activities of Zespri.
IKGA believes there are questions that are not being asked about the activities of Zespri, the way
it operates and how grower funds are dealt with by Zespri.
IKGA is concerned that Zespri has become another corporate and lacks proper accountability to
growers.
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